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Perhaps all speculation can be put aside, now that it has been officially declared that the dirham will stay pegged to the dollar. For some time now, speculators and businessmen, and even the general public, have been calling for the dirham to be de-linked from the dollar, as due to its present standing in the global economy, it was driving up the cost of living and imported products to unreasonable levels. Specialists in financial matters were pointing to other economies that have either a free-floating currency, or their exchange rates pegged to a basket of international currencies, thereby making the dramatic fall of the dollar less damaging to their economies.
However, to suddenly de-link the dirham is not easy and will have many, possibly unforeseen, consequences. For example, as a leading oil producer the UAE has historically sold its products in dollars, being the long-standing practice of the oil industry. To shift to another currency or basket of currencies could have more serious effects than those presently being experienced through the decline of the dollar against other stronger currencies, such as the euro.
Now is not the time to consider any de-linking of the dirham with the dollar; maybe the issue can be addressed at some future date, when the dollar is showing greater strength and traders have more confidence in it. But there is also the merging of Gulf Cooperation Council currencies, which is scheduled to take place in 2010 - although there is much still to be done before then, raising the possibility of that date being deferred.
The UAE is not alone in suffering from a declining dollar and can be seen by the spiralling prices in many countries, creating even greater difficulties for the less affluent. Sadly, though, the only answer economists have at the moment is to weather the storm.
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