Friday, November 23, 2007

Currency speculation

People have been buying UAE Dirhams like crazy. Deposits are being converted from rials and dollars into dirhams. The dollar is being dumped.

The UAE's central bank governor has gone on the record their intention to consider a revaluation of their currency, preferably in a joint move with the other GCC states, but that they will act on their own if the other states don't come into an agreement with them. [link]

Oman's silence on the issue is hitting a nerve with people and they are reflecting it by shifting their deposits into dirhams. This is a clear signal that the lack of transparency is leading to a loss of trust. They're afraid of losing out if our neighbors revalue their currencies and we get left out with a lower valued currency leaving us with a rial that buys us less of everything. Additionally, should the UAE revalue and Oman doesn't, there's an arbitrage opportunity. Even if Oman follows up with a revaluation of its own, the shift to dirhams is still a hedge because at least they (the UAE) are telling us that it might be coming while we (Oman) are totally silent about it.

Earlier this year: Currency revaluation talks


Anonymous said...

I always thought the size of trade (imports and investments ... hint hint) with the UAE was way too important to allow ourselves end up with a much weaker currency than the AED. However, I might be mistaken and the powers-that-be ought to have better data than me. If indeed people in the know are shedding OR in favor of AED then it will be prudent for your average Joe Public to do the same.

Undercover Dragon said...

I see that the Minister of MoNE's brother [Head of FINCORP] is speculating in the press about Oman NOT abandoning the dollar peg, but suggesting a revaluation of the rial would be appropriate.

Testing the water perhaps? By not going to a basket of currencies [as Kuwait did] and simply reversing the earlier devaluation when the oil price was v. low, everone could save face and the rial could be revalued.

I still think the UAE revaluation might be more than Oman's though... so maybe those AED's are are very very good idea. Hold til late December folks.

sythe said...

Thanks for shedding light on this very serious issue. I'd advise anyone with Omani Rials, or for that matter any other currency, to trade to AED and wait for the revaluation. Oil makes the world go round, if a revaluation takes place, it'll be a stronger currency.

Stormy said...

Personally I think all the GCC have to be on the same side of the river !

The changes that UAE Central Bank is going through definitely will consider its situation and position in the oil world trading and they certainly need to have a stable strong place.