The United Arab Emirates, the Persian Gulf's second-largest Arab economy, is studying whether to maintain its current exchange rate policy of pegging the dirham to the U.S. dollar, the country's finance minister said.
"We're under study with the Gulf and we'll see what's the solution," Sheikh Hamdan bin Rashid Al Maktoum, told Zawya Dow Jones on the sidelines of a business event in Dubai Tuesday. "It is difficult to know where you are going to move."
The emirates has set up a task force to assess options on whether to revalue, or depeg the dirham from the plummeting U.S. dollar, Zawya Dow Jones reported Monday, citing people familiar with the matter at the country's central bank.
"There is the dollar, the euro and the yen. These are the only three currencies you can rely on. You can't go straight to the euro because it's too high and the yen is going up and down very quickly. And it's true the rate of the dollar is losing. It is true we are exporting more than we're importing but we're just exporting the crude oil." Sheikh Hamdan, who is also the elder brother of Dubai's ruler Sheikh Mohammed bin Rashid Al Maktoum.
Inflation in the emirates is surging as the country struggles to match U.S. Federal Reserve interest rate cuts at a time when a booming economy and rising consumption in the U.A.E. calls for tighter fiscal policies.
Pegged at a rate of 3.6725 dirhams against the greenback, some economists estimate its resulting imported inflation contributes 40% of total inflation. The National Bank of Abu Dhabi estimates U.A.E. inflation at 10.9% in 2007.
The government introduced Wednesday price caps on 16 basic food commodities including sugar, cooking oil and eggs in an effort to halt spiraling inflation.
Qatar is also closely assessing whether its existing foreign exchange rate policy remains tenable as the dollar continues to plummet.
Qatar's Prime Minister Sheikh Hamed bin Jassem Al Thani told Zawya Dow Jones in an interview in January that Qatar was studying de-linking its currency from the U.S. dollar.
Al Thani said that Qatar may peg the Qatari rial to a basket of currencies.
Official's at Qatar's central bank told Zawya Dow Jones this week that the Persian Gulf sheikhdom may make a decision on whether to either revalue its currency or sever its link to the dollar as early as next month.