U.A.E. May Revalue Its Currency
By Matthew Brown
Nov. 28 (Bloomberg) -- The United Arab Emirates may
revalue its currency against the dollar as early as Dec. 2,
ArabianBusiness.com reported today, citing a person close to
the Central Bank of the U.A.E.
There is a plan to revalue the dirham by between 3 percent
and 5 percent when the banks are closed for U.A.E. National Day
on Dec. 2 or during the Eid holidays later in December, the
business news Web site cited the unidentified person as saying.
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After 30 years of the peg, I think this might be a crucial step going forward for the UAE. As is it, the Fed is expected to lower rates by a quarter to half points at their next meeting (Dec 11)..which obviously implies a further decline in the dollar, unless oil prices offset the effect. But if this measure causes the dirham to appreciate, the country's dollar reserves are going to lose value in real terms...
In any case, I think it might be safe to consider pegging to a currency basket like Kuwait (even though 70% of their basket is still the dollar, bundled with some European currencies). Let's see how it goes. Interesting times!