September 27, 2024
The economic stability of every country is based on the stable value of its currency, which provides a strong base for transactions, trade, and investment. The United Arab Emirates (UAE) marks its stability and symbol of strength in its currency Dirham (AED), which proves to be defining the nation's emerging business scene. In this blog the basic understanding of AED will be provided and the reasons it has maintained resilience throughout the years worldwide, especially in comparison to other world currencies such as USD and the underlying factors that contribute to its stability.
Understanding AED
The official currency of Dubai and the other Emirates is the United Arab Emirates dirham, or AED for short. The symbol DHS or DH is frequently used to represent it. Since 1973, the United Arab Emirates dirham has been in use, taking the place of various currencies including the Qatari riyal and the Dubai riyal. A dirham in the United Arab Emirates is composed of 100 fils. There are denominations of 5, 10, 20, 50, 100, 200, 500, and 1,000 dirhams available. There are three different coin denominations: 1, 25, and 50 fils. It's interesting to note that coins that are worth less than 10 are not often used.
The nation's banknotes are printed by the Central Bank of the United Arab Emirates. A number of watermarks, such as the national emblem that appears on the front of every note, are used to thwart counterfeiting. Counterfeiting is included in the list of crimes that are punishable, as is any action that is "deemed an insult" to the national emblem. The logo features a golden falcon with seven stars in the centre of the disc, signifying each of the Emirates, and seven feathers.
The United Arab Emirates Economy and the AED
According to the World Economic Forum's Global Competitiveness Index, the United Arab Emirates ranked 25th in 2019 with a gross domestic product of approximately $421 billion. The emirates, with the exception of Dubai, are mostly dependent on natural gas reserves and oil exports, though they have been steadily moving in the direction of diversification. Regarding exchange rate stability, investors view the UAE dirham as one of the most stable currencies in the world. Since 1997, it has been fixed at a rate of one US dollar to 3.6725 AED against the US dollar.
Dirham AS A Pillar for Stability
Fixed Exchange Rate: The US Dollar (USD) is the benchmark for the UAE Dirham, with a fixed exchange rate of 3.67 AED for every USD. Since its establishment in 1997, this pegging arrangement has offered businesses, investors, and consumers a stable and predictable exchange rate regime.
Robust Regulation and Prudent Fiscal Policies: The stability of the Dirham is attributed to the UAE's restrictive regulations and fiscal policies. Price stability, low inflation, and sustainable economic growth are all ensured by the Central Bank of the United Arab Emirates through sound monetary management, which adds to the currency's credibility.
Diversified Economy: The crucial area of understanding is the diversified economy of the United Arab Emirates because of the presence of a number of brilliant industries such as tourism, real estate, trade, finance and oil and gas. The currency has maintained increased resilience to external shocks and decreased reliance on oil earnings, this diversification helps Dirham to maintain a stable position when other currency values fluctuate.
Why Is It Correlated to the US Dollar?
Officials see it as advantageous to peg the country's currency to the US dollar due to the country's reliance on the oil industry. Recall that the currency used to express oil prices is US dollars. The UAE government can lessen the erratic nature of its exports by fixing its currency against the US dollar. To keep the peg in place, the nation's economic indicators and current account must remain at their ideal levels. For instance, the UAE government is currently running a current account surplus relative to its GDP.
Nevertheless, the peg can be detrimental to official policy. For instance, the 2015 collapse in oil prices decreased the countries of the Gulf Cooperation Council's revenue. Devaluing their currencies in relation to the US dollar was a concept that several nations explored. Given the possibility of repatriating US dollars earned from oil sales for more dirhams, the devaluation would increase local revenue.
Comparative Analysis: UAE Dirham vs. Other World Currencies
Stability Amid Volatility: As previously mentioned the Dirham has maintained stability in global currency throughout the years, even among the times of uncertainty about the conditions of global currency value and currency fluctuation. The underlying cause is its peg to the US dollar, which acts as a solid anchor which provides a shield from speculative attacks and currency fluctuations.
Economic Fundamentals: The UAE's substantial reserves of foreign exchange, strong GDP growth, and low inflation place the dirham in a favourable position relative to other currencies. The UAE maintains a stable currency environment that encourages investment and growth, in contrast to many other nations that struggle with inflationary pressures and currency depreciation.
Investor Confidence: One of the major reasons to attract international investors is the stability of dirham value, it provides stable economic growth that benefits both the state and individual investor. Dirham is viewed by the investors as a safe place amidst market volatility because of its predictability and transparency in the UAE's currency regime.
In conclusion, the United Arab Emirates dirham, the official currency of the United Arab Emirates and Dubai, has been in use since 1973. It has been the core reason for the nation’s economic prosperity and resilience. The currency has provided the reason for the long lasting sustainable growth and development. Because of its diversified economy, pegged exchange rate system, and sound fiscal management, the dirham is seen as a symbol of stability in the United Arab Emirates. The UAE Dirham continues to stand firm in the face of uncertainty in the global economy, providing stability and confidence to investors, consumers, and businesses alike. In the context of the global currency landscape, the Dirham will continue to be a representation of strength and resilience as the United Arab Emirates navigates its path towards economic diversification and innovation.
