Pegging of currencies means the practice of binding or attaching the exchange rate of a coin to the money of another nation. It involves using a pre-set ratio known as a fixed rate. Pegs are generally set for giving stability to a country’s funds by linking them to an already stable currency in the market. It is reflective of the growing economy of the country.
Kavan Choksi on the US dollar as a pegging currency
Business expert Kavan Choksi says the American dollar is a famous currency peg for many countries worldwide. The practice also refers to manipulating the underlying price of an asset like a commodity before the option expiry.
The principle of pegging GCC currencies to the American dollar has existed in the world for several years now and serves several benefits to nations like the UAE. Since 1980, the currencies of Saudi Arabia and the UAE have been pegged to the US dollar and are continuing for a long time. Experts researching the complexities of the changing conditions in the world and studies on the above recently concluded the time has come to evaluate the pegging of the US dollar to other currencies and move on due to its fluctuating volatility in the market. It can affect world economy severely.
The advantages of pegging the US dollar with UAE’s Dirham
Pegging the US dollar with the Dirham of the UAE is helping its economy and exchange rate. First, the oil requirements coming in from many nations of the region have increased wealth in these areas. The capital that is gained from the sales of oil can be re-invested into American companies for getting more returns. Moreover, pegging the American dollar with the Dirham of the UAE helps control the economy’s inflation.
Oil is traded in dollars in the global market, and the GCC countries exporting oil might peg their currencies to USD for increased profits. These profits can be invested back into the USA companies for better returns. This practice of dollar pegging has been highly beneficial for the GCC nations as it helps them control the region.
Business expert Kavan Choksi witnessed the above practice as a primary benefit for pegging the local currency to the USA dollar as the region’s wealth depends a lot on the oil sector. It assists the area in decreasing the volatility of the goods exported while pegging the Dirham with US dollars. To ensure that this peg is maintained, both the nation’s economic indicators with its accounts have to be held at optimal standards. Pegging plays an important role in the economic growth and development of a country. UAE and US are the leading example of this.
The pegging of the US dollars to the UAE Dirham also boosts investors’ confidence in the economy as the wealth of the region surges leading to a consistent boost in the other sectors of the economy in UAE too! The role and importance of pegging cannot be undermined even if you want to.
