The UAE Central Bank remains committed to the currency peg between the UAE dirham and the dollar, according to a statement by the bank.
The dollar has fallen sharply against other international currencies as a deadlock over increasing the US debt ceiling in Congress raised concerns about the country defaulting on its obligations and its credit rating being downgraded. The US administration has said the country will hit its debt limit on August 2.
"We believe that the debate on the US public debt ceiling will end with a compromise before the deadline," the Central Bank statement said. The bank added it had no fears about the future of the dollar, even though it was exposed to price fluctuations, as it happens with all major currencies.
The Central Bank also said it currently possesses no treasury bonds or any other financial instruments issued by the US government due to the very low return on these instruments.
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It explained that despite the fact that Central Bank foreign reserves are mainly denominated in dollars, they are invested mostly in non-US assets. It added that there is no direct link between the dollar-denominated assets and the US government debt.
Mohammad Amerah, an Abu Dhabi based economist, agreed with the decision to maintain the currency peg. "I cannot see the dirham de-pegging from the dollar in the foreseeable future. It is very difficult to change from the dollar to a basket of currencies." Amerah added that the US will cooperate with China and EU to keep the dollar stable. And, in any event: "Regardless of what will happen to the dollar, the US economy is strong". The Central Bank statement also said: "We do not believe that the US government [will] default on its debts, given its enormous potential." Republicans are due to adopt a plan which focuses on cutting government spending in the US. The Democrats, who want to raise more taxes and revenue to reduce debt, have said they will reject it. With the deadline looming, there is still no sign of a compromise.