2007-06-07
Special Drawing Rights
A quick little money blurb today.

Up until last year I really didn't know a whole lot about currency exchange, international business, or even basic economics. But boy, living in Dubai and working on my MBA really have changed all that.

First off, it's amazing to see U.S. Dollars being used as currency here. I've seen students at the university pay for a semester in American hundred dollar bills. I guess it really is all about the Benjamins.

Huh.

But it makes sense, the U.A.E. Dirham is pegged to the U.S. Dollar at a fixed exchange rate - 1 dollar = 3.67259546 dirhams. Every day, any day of the year it's the same.

I did some poking around, and the list of countries who have their currency pegged to the dollar is really too long to list.

But even more amazing to me, did you know that Ecuador, El Salvador, Panama, Turks and Caicos and (somewhat ironically) the British Virgin Islands don’t even have their own currency, and just use U.S. Dollars?

Anyway, this last week Syria announced its plan to drop its peg to the U.S. dollar this summer, after sixty years.

Instead, they’re going to peg the Syrian pound to the International Monetary Fund's Special Drawing Rights.

Special Drawing Rights Is a basket of major currencies used in international trade and finance, each with a different percentage.

The percentages are:
    44% the U.S. Dollar
    34% the Euro
    11% the Japanese Yen
    11% the British Pound
Apparently SDRs were created to replace gold in large international transactions, a sort of "paper gold". That way if one currency falls, it will only alter a percentage of the total.

This is of special interest here in Dubai with our British and European friends, as they're all getting paid in Dirhams - a currency pegged to the Dollar, which is falling compared to the British Pound and the Euro.

So this year, because of exchange rates, they’re making less money than they did last year.

I'm hardly an economist, but pegging a currency to SDRs seems like a better plan than fixing it to one currency. In fact, the gulf has their own mini-European Union - the Gulf Cooperation Council (GCC). The GCC comprises of the U.A.E. along with Bahrain, Kuwait, Oman, Qatar and the Kingdom of Saudi Arabia. In addition to working together on economic and social conditions, they’re planning a common currency for introduction in 2010.

It’ll be interesting to see what they peg it to.
posted by Josh @ 6:54 AM  

Josh and Liz are two American kids who got married in August. Liz has lived in Dubai since 2003, Josh since August of 2006.

Follow along in the culture shock of being recently married and (for Josh, at least) recently transplanted to Dubai.


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