Currency pegging to the US dollars carries several advantages. The principle of currency pegging is old, and when it comes to the GCC nations, their currencies have been pegged to the USD since 1980, and the practice continues to date. Saudi Arabia and the United Arab Emirates have increased the wealth of their regions thanks to this practice. Financial experts now think that considering the current complexities of the international economy, it is high time for the pegging of the US dollar to be reconciled after assessing the market volatility before moving on to the next step of economic development.
Kavan Choksi –what does currency-pegging mean?
Finance and business expert Kavan Choksi states that to understand the practice of currency, one should first have a clear understanding of the concept. Pegging refers to the standard norm of binding a currency’s rate against a more robust and stable currency in the international economy. The Central Banks control the market operations of these currencies to stabilize the currency by binding it with another coin of another nation that is more stable. It also is a process for manipulating an asset like an underlying commodity and is standard for cross-trading. Since several companies now have skinny margins of profits, even a tiny change in the rates of foreign exchange can affect them in a big way in terms of profits. They can suffer from losses, and this might place their business in trouble.
The practice of pegging GCC-country currencies
The concept of currency pegging to the USD has existed for several years, mainly for the United Arab Emirates and Saudi Arabia since the 1980s. When it comes to the effects of this currency pegging of the US dollar against the UAE’s Dirham, the IMF has observed that the latter’s stability was dependent upon the USD for maintaining a stable economy in the region. It helps to maintain a fixed rate of exchange and boosts the financial status of the economy as the flow of foreign investment is enabled in part.
The wealth in the UAE has increased
The pegging of the USD and UAE Dirham has improved the region’s exchange rate due to an increase in the demand for oil sales from the other countries in the UAE. This has led to the rise of wealth in all states, and the profits they gain from these sales can be invested back into companies in the USA for higher returns. This action helps in wealth building, making the region richer with higher profits and returns. Moreover, the pegging of the USD with the UAE Dirham has allowed the area to keep inflation levels under control.
Business and finance expert Kavan Choksi observes this currency pegging of the USD with the Dirham of the UAE has increased investors’ confidence in the region and is leading to an improvement in the other sectors of the economy in the area as well. More and more investors are showing their interest in the market and are willing to take the risk.
