Macroeconomy

Saif Hadef Al Shamsi, BIS (Bank for International Settlements), 2013

The UAE’s Union Law 10 of 1980 stresses that one of the major tasks of the Central Bank of the United Arab Emirates is to “support the currency, maintain its stability and ensure its free convertibility into foreign currencies”. In practice, this has translated into the adoption of a fixed dollar/dirham exchange rate, which essentially implies a passive approach to foreign exchange intervention. Liquidity is balanced through the use of tools such as Certificates of Deposit (CDs), both conventional and Islamic, as well as dollar/dirham swaps. These tools help to sterilise excess liquidity and to provide liquidity during times of market stress. Recent experiences and challenges suggest that these tools have served the UAE well, but as debt and trade flows enlarge, a more proactive approach may be required in regulating liquidity within the UAE financial system.


View PDF

Related Topics