How revaluation would benefit UAE investors

Investing against a currency held artificially low by a central bank is a sure-fire way to make money. Investors like George Soros and Jim Rogers have made huge amounts of money betting against central banks. George Soros famously made a billion dollars betting against the UK pound in the early 1990s.

So can investors in the UAE hope to profit in the same way from a revaluation in the dirham? Local banks report a strong inflow of foreign currency into the dirham as speculators take their positions.

All you need, in fact, is a local currency account and the funds to transfer from a foreign currency. The UAE has no controls on the flow of capital into and out of the country, although residency is generally a criterion for opening a bank account.

Revaluation bonus

Then when the revaluation is done you can swiftly move funds back in the reverse direction and pocket the revaluation bonus in terms of additional foreign currency.

There is not much risk to this simple speculation as the downside of no revaluation means that you would merely lose on the exchange commission and the very narrow spread between the dirham and the US dollar. Of course, your time and annoyance might be worth considering.

However, you do not need to hold dirhams. If you own shares in UAE companies or property in Dubai then you already have a position in a dirham-denominated asset that stands to benefit from a revaluation.

For example, a 10 per cent revaluation means that your Emaar Properties stock is worth 10 per cent more in dollar terms; and your apartment in the Dubai Marina would be worth 10 per cent more too.

Where you would lose of course is if you are a long term UAE resident or national and holding US dollar assets. Then you would note that the value of your assets in dirhams had fallen.

Winners and losers

The biggest loser would clearly be the Abu Dhabi Investment Authority with its hundreds of billions in dollar-denominated assets. But this would have to be balanced against the rise in the value of euro and pound denominated assets when translated into revalued dirhams.

Indeed, UAE investors in overseas assets might find themselves better off in dirhams terms, depending on exactly in which currency their assets were denominated.

But surely the revaluation of the dirham is long overdue as the UAE is a strong and diversified hydrocarbon economy and to see its currency devaluing alongside the sickly dollar is a tax on local investors that is just not justified by national economic performance.

See also:
A new Middle East currency regime looks inevitable
Why revaluation should be top of the UAE agenda to beat inflation