Dubai (AsiaNews/Agencies - The United Arab Emirates could revalue its currency, the dirham, against the dollar. The measure, requested of the central bank by a report from the chamber of commerce and industry of Dubai, has the aim of combating growing inflation, partly caused by the weakness of the American currency.
For many years, the exchange rate between the dollar and the currencies of the Gulf countries has been fixed (for the dirham, it is at 3.67 per dollar). The effect of dollar weakness on the oil price has brought increasing liquidity to oil-exporting countries, but it has also brought strong inflationary pressures; for example, in 2007 the rate of inflation was 7% in Saudi Arabia and 14% in Qatar.
Apart from its effects on the domestic situation in each country, the report from the Dubai commerce chamber points out that the weak dollar is endangering the implementation of the monetary union among the countries of the Gulf Cooperation Council (Saudi Arabia, United Arab Emirates, Kuwait, Oman, and Qatar), scheduled for 2010.
In this regard, the Khaleej Times writes that analysts maintain that a revaluation of the various national currencies and the switch to a peg against a basket of foreign currencies could assist in the process of monetary unification. "Abundant liquidity and expansionary macroeconomic policies have fuelled domestic demand and led to a surge in inflation rates in the Gulf region. With the dollar’s weakness, the GCC countries have experienced a sustained depreciation of their real effective exchange rates and an increase in imported inflation. In our view, although the inflation problem and enormous current account surpluses alone justify currency revaluation, it would also help accelerating convergence for the planned monetary union".