U.A.E. to Keep Dollar Peg After U.S. Pressure, Official Says

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Source: Bloomberg

March 17 (Bloomberg) -- The United Arab Emirates, conceding to U.S. pressure and a desire to act in concert with Gulf allies, will keep the dirham pegged to the dollar, a U.A.E. central bank official said.

U.S. Embassy officials last week told central bank Governor Sultan Bin Nasser al-Suwaidi of their concern about reports that the sheikhdom may drop the peg, the official said yesterday, speaking on condition of anonymity. Political leaders have stopped the bank from developing any plans to move toward another currency regime, the official said. U.S. Embassy spokesman Atalah Hoshan in Abu Dhabi wasn't immediately available for comment.

Abandoning the link would risk further weakening the dollar as the U.S. economy falters and the Federal Reserve battles a crisis of confidence in financial markets. The oil-rich Gulf states, including Saudi Arabia and the U.A.E., depend on the U.S. for political and military backing and are unlikely to abandon their closest ally at a time of financial turmoil, said Anoushka Marashlian, senior Middle East analyst at Global Insight in London.

``The U.S. has always been the guarantor of U.A.E. military security,'' Marashlian said. ``The U.A.E. wouldn't do anything to compromise that relationship.''

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