Kavan Choksi-How Has UAE’s Dirhams Pegging To The USA Dollar Boosted Its Economic Wealth?

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Currency pegging is an old practice that nations have followed across the world to boost their economic wealth and international trade with other countries. In this case, one currency is linked to another for financial stability.

The rate of currency exchange refers to the value of one currency compared to another. Some of them are free-floating, and their rates change as per the law of supply and demand in the global market, while others are fixed and remain pegged to another currency.

For instance, the UAE has pegged the Dirhams to the USA dollar and facilitated a surge in economic wealth in the region. Currency pegging is significant in international trade and commerce as it helps boost economic activity in the area. The GCC nation’s currencies have been pegged to the US dollar since the 1980s, and since then, there has been an increase in the economic wealth in these regions.

Kavan Choksi- what is currency pegging? 

In order to understand how currency pegging works for the economic benefit of a nation, you first must know what it means. According to business and finance expert Kavan Choksi, currency pegging is an old practice, and it has a lot of advantages for countries like the UAE and Saudi Arabia. Their currencies have been pegged to the dollar of the USA for a long time. Currency pegging refers to the standard practice of binding the currency rates of two countries. In this case, like with the USD, the second currency is that of a stronger nation. Their control is under the central banks for monitoring their market operations.

How has the UAE benefited from currency pegging to the USD? 

The UAE has boosted its economic wealth and direct foreign investment in the region from other nations in the world. The demand for its oil from different countries of the UAE has risen, leading to a boost in wealth as oil is purchased and sold in the international market in dollars. The money acquired from the sales of this oil is again re-invested into companies in the USA for reaping increased returns. The UAE has also kept inflation under control thanks to the pegging of the Dirhams with the US Dollar.

The economic stability in the region has been boosted 

The IMF has observed that the stability of UAE’s Dirham depends upon the USD. In fact, this principle determines how effectively the exchange rate of the local currency is maintained. Moreover, currency pegging to the USD has helped the UAE to retain a stable and fixed rate of exchange in the economy of the region.

It has multiple benefits to banks and has attracted foreign investments in the country. The currency pegging of the UAE dirhams with the US dollar has also boosted the confidence of foreign investors in the area. More foreign investments have led to growth in the other economic sectors of the region.

According to business and finance expert Kavan Choksi, the most significant advantage of UAE’s Dirhams currency pegging to the US Dollar has made the region economically stronger thanks to the oil industry. However, this currency peg needs to be retained successfully, and this can be achieved if the economic indicators and their accounts are maintained at optimal levels.

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