The United Arab Emirates government has established a new committee, which purpose is to study the possibility of scrapping the dirhams peg to the U.S. dollar and the reasons to maintain this peg.
According to the prime minister Sheikh Mohammed Bin Rashid Al-Maktoum, the study will focus on the benefits of staying with the peg or not. And the results of the study will be reported to prime minister. He didnt disclose a particular date when the committee will finish its work.
The United Arab Emirates and their neighboring Gulf countries suffer from a depreciating dollar, as their currencies that are pegged to the dollar also devalue at a fast pace, thus increasing the domestic inflation.
As the U.S. economy is damaged by the crisis, while oil rich Middle East countries are experiencing economical boom, many currency analysts believe that the Gulf countries will keep getting more reasons to drop the peg in 2008 rather than continue to maintain it.
The consumer inflation in UAE rose to 9.8% 2007 up from 9.3% in 2006, which is above the normal level even for a fast developing economy.
Earlier this year, monetary officials of UAE stated that they are not dropping the peg to dollar. Creating a study committee may signal that they are changing their minds now.
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