In an open and emerging economy like the United Arab Emirates, a clear-cut monetary system is needed to be able to conduct a successful and efficient trade. A monetary system is defined as “set of mechanisms by which a government provides money (cash) in a country’s economy.”

By virtue of the 1980 Union Law No. 10, the Central Bank of the UAE (CBU) controlled the monetary system of the United Arab Emirates. The CBU was to be the “bank of banks” who enforces provisions of the law, sets regulations, and issues policies, circulars for the maintenance and sustenance of the UAE economy. The same law also put into circulation the Emirian dirham (AED) which replaced the Qatari/Dubai dinar and the riyal as currency of the UAE.

The 2003 IMF ROSC reveals that the CBU ranked among those banks with best banking practices . Despite this honor, the CBU has its weaknesses namely in the transparency in reporting the amount and the process involved in annual net profits. Though, CBU may lack in this area it already has the media to implement this: Statistical Bulletins, Annual Reports, and the CBU website itself, which is constantly updated.

The UAE dirham is linked to the US dollar and much of UAE goods and services are sold in dollars; thereby, causing less fluctuations in its monetary values. However, the UAE does not have control over its contractionary policy, thus, it cannot also control inflation rates. On the other hand, both the IMF and an independent analyst see this in a positive light in relation to UAEs persistent economy, at least for the medium-term.

Keywords: monetary system, monetary policy, Central Bank of UAE, currency

The Monetary System of the United Arab Emirates

The United Arab Emirates, as in the other states of the Gulf Cooperating Council (GCC), engage in an open and free economic system; thereby, encouraging businesses from all over the world to invest in its emirates, particularly in Abu Dhabi and Dubai. To successfully and efficiently conduct trade with their world partners, the UAE employs a monetary system, or a medium of exchange.