The concept of pegging GCC currencies to the US dollar is there around for many decades now, and it has many advantages too for countries like the UAE. The United Arab Emirates and Saudi Arabia currencies have been pegged to US dollars from the 80s onwards. This has been going so for a longer time, and by considering the complexities in the changing global economic conditions, some studies lately concluded that it is time to reconcile the dollar pegging by assessing the volatility and then move on. This article will discuss the concept of currency pegging and some advantages of US dollar pegging with Dirham.
is it safe to buy clomid online uk The concept of the pegging of currencies- Kavan Choksi
To understand this concept, one should first have a clear knowledge of the pegging of a currency. Pegging is a standard practice of binding a currency rate to the currency rate of another stronger country. The central banks control the market operations of currencies for stabilizing the currency by locking it against another country, which is more secure. Bell Ville Kavan Choksi also explains pegging as the process of price manipulation of an asset that is underlying like a commodity. The currency pegging is primarily used to promote any cross-trade by looking at the foreign exchange rates of the currency. As many companies now have very thin profit margins, even the slightest changes in foreign exchange rates may abort their profits and put the businesses in trouble.
Raduzhnyy US dollar-pegged with UAE dirham helping exchange rate of UAE
Here are some of the major advantages of USD pegged with Dirham in helping out the exchange rates of the UAE. First of all, the oil needs of many other countries from the UAE led to the increase in the wealth of these states. The capital earned through oil sales can be reinvested into US companies to gain better returns. Pegging USD with UAE Dirham may also help control the inflation in the UAE.
As oil is usually traded in dollars in the international market, the GCC oil-exporting nations may peg their currencies to the US dollars to ensure more profit. In order to receive higher returns, it can often be reinvested in US companies. Dollar pegging was performed over time and helped manage the inflation control in the GCC countries.
Experts see this as the major benefit of pegging the local currency to the US dollar for the UAE as the wealth of the country depends on oil industries. It helps to reduce the volatility of exports while pegging the currency with US dollars. In order to keep this peg, the economic indicators of the country, as well as the accounts, have to be held at optimum levels.
Maintaining economic stability
IMF also observed that the stability of the Dirham is largely based on the US dollar pegging, and the fixed exchange rates are maintained. This combination has benefited a stable rate in the UAE economy, offering many benefits to the banking sector and attracting a high volume of foreign investments into the country.
To conclude, Kavan Choksi also observes that the US dollar pegging with Dirham increases investors’ confidence and thereby boosts the other economic sectors of the UAE as well.