Dubai's Government Supports U.A.E. Dollar Peg, Bin Sulayem Says

Dubai's Government Supports U.A.E. Dollar Peg, Bin Sulayem Says

By Will McSheehy

Jan. 25 (Bloomberg) -- Dubai's government supports the United Arab Emirates' dollar peg and will resist a currency revaluation, Executive Council member Sultan bin Sulayem said.

Central banks in six Gulf Cooperation Council states, including Saudi Arabia and the U.A.E., are under pressure to revalue their currencies as the dollar declines, stoking inflation to record levels. Kuwait was the first to drop its peg in May, choosing a basket of currencies instead. The dollar has dropped in five of the past six years, weakening by 8 percent on a trade-weighted basis in 2007.

``To change is very risky,'' bin Sulayem said in an interview at the World Economic Forum in Davos, Switzerland today. ``It's important to continue with the dollar despite its weakness.''

U.A.E. central bank Governor Sultan bin Nasser al-Suwaidi said on Jan. 3 the federation won't drop the 30-year-old system of pegging the dirham to dollar and doesn't see a need to revalue the currency because rising rents are the prime cause of inflation. The central bank governors of Saudi Arabia, Qatar, Oman and Bahrain have also said they have no intention of revaluing or dropping their pegs.

Qatar ``might'' revalue its currency and a change in currency regime is ``under discussion'' as the riyal is undervalued against the dollar by 30 percent, Qatar Prime Minister Sheikh Hamad bin Jasim bin Jaber al-Thani said in an interview in Davos yesterday.

``If we suddenly change, do you think anyone will trust our currency?'' bin Sulayem said today. ``It's a matter of credibility for the dirham.''

The executive council advises Dubai Ruler Sheikh Mohammed bin Rashid al-Maktoum, who is also Vice-President and Prime Minister of the U.A.E.