UAE should drop dirham's peg to US dollar, says economist

The UAE should consider dropping its currency peg to the US dollar and switch to another currency or float the dirham independently, says the chief economist at Schroders, a commercial bank and asset management company based in London.

Keith Wade believes the main advantage to aligning one currency to another is to piggyback off a stronger country's monetary stability.

But given the state of the US economy and the weakened US dollar, that no longer makes sense, he said.

"You try to get the monetary discipline of a stronger neighbour. But when that stronger economy is not performing, then why bother?" said Mr Wade.

He added the US dollar's weakness relative to other currencies was a positive stimulus for economic growth. But some experts say in a country such as the UAE, where growth is already quite strong, having a competitive currency could lead to higher inflation in the economy.

Mr Wade said the dollar's weakness prompted concern - but added it was not obvious what the alternative might be.

"People are questioning why they should be tied to the dollar because it's one of the weakest currencies," he said.

"There is a case to say you should move to something else, but it's not clear what you peg to."

rjones@thenational.ae