UAE exchange houses are experiencing a surge in business as the strength of the US dollar against Asian currencies spurs more expatriates to send money home.
The depreciation of the Indian and Pakistani rupees against the dollar is increasing the incentive to remit as people seek to take advantage of the higher purchasing power their cash generates in their home countries.
The dirham has a fixed exchange rate to the dollar, meaning fluctuations in the price of the greenback have a direct bearing on the dirham's value. The dollar index, which measures the dollar's value against a basket of other currencies, rose about 10 per cent in the final seven months of last year.
"When the US dollar is strong in the market we can see an increase in the value and volume of transactions," said Mohammed Al Ansari, the chairman and managing director of Al Ansari Exchange, one of the biggest providers of exchange services in the Emirates.
"Generally, expatriates do some saving, and when the exchange rates come down its a good chance to send money back home. They are sending their average amount home every month, but when the rate changes in favour of the dirham, others will step into the market, too."
Most of the money remitted goes to the Indian subcontinent.
There was a 20 per cent increase in exchange transactions at Al Ansari last month compared with November and October. Over the entire year, transactions rose by 25 per cent from the previous year.
Mr Al Ansari said part of the increase in remittances last month was seasonal and some of the pickup in business over the year was also due to the exchange opening 15 new branches.
The UAE Exchange reported a similar trend, as favourable exchange rates persuaded middle and upper-income Indians to transfer money home. As a result, transactions at the UAE Exchange in the final quarter of last year were up 20 per cent compared with the final quarter of 2010.
"The jump is from high-net-worth individuals who have their money in savings here and have been waiting for a fall in the exchange rate," said Sudhir Kumar Shetty, the chief operating officer of the UAE Exchange, which is headquartered in Abu Dhabi and has 550 branches in 29 countries.
The Indian rupee was the worst performer of all Asian currencies last year, losing about 16 per cent of its value. Pakistan's rupee depreciated about 5 per cent against the dollar last year.
The depreciation in the currencies coincided with an exodus of foreign funds in the second half of the year as investors worried about a weakening global economy. Instead, many piled into the dollar, historically viewed as a haven in times of turmoil. The move helped to push up the dollar's value by 3 per cent in November alone.
But the dollar's rally is seen by many analysts as a short-term trend.
"Over time, the erosion of the US dollar as a reserve currency will go hand in hand with a loss in its value," HSBC analysts said in a recent report on the dollar's long-term outlook.