UAE. Revaluation fever hit Arabian Gulf currencies on Wednesday as the UAE Dirham surged to its strongest since 1990 with bids reaching 3.6600 per dollar.

The Saudi Arabian Riyal  hit a 21-year high and the Qatar riyal a five-year high. Bids on the dollar-pegged Saudi Riyal were as high as 3.6900 per dollar, the strongest since 1986, and bids on the Qatar Riyal hit 3.6250 per dollar, the highest since November 2002.

A report on the website of Arabian Business magazine said that the UAE could revalue the dirham by 3% to 5% as early as Sunday. 

Arabian Business reported that the UAE, one of five Gulf oil producers that pegs its currency to the dollar, could make an announcement about allowing its dirham to appreciate during National Day holidays on Monday and Tuesday, citing unidentified sources close to the UAE Central Bank.

"The plan is to make an announcement when the banks are closed - National Day is an option, and if not National Day then the Eid holidays later in December," one of the sources said, according to the website of Arabian Business at www.ArabianBusiness.com

Gulf nations pegged their currencies to the US Dollar to stabilise revenue from oil, which is traded in dollars.

Dollar pegs force Gulf central banks to track US monetary policy to maintain the relative value of their currencies, at a time when Federal Reserve is cutting rates and inflation in the Gulf is running at decade highs

The GCC, made up of Saudi Arabia, the United Arab Emirates, Qatar, Oman, Bahrain and Kuwait, will discuss a proposal to revalue their currencies when heads of state attend a summit in Doha, Qatar on Monday and Tuesday.

There has been a lot of speculation about revaluation, moving away from the dollar peg to a basket of currencies, and the timing of any annoucement.

A recent report by the private client consulting divison of Strategy Garden, the Dubai based publisher of Business Intelligence Middle East, says there will be no announcement at least before the GCC Summit in Doha on 3-4 December.

"There are a lot of complex variables being considered some political, some economic, and some geopolitical. Central bankers must be reviewing all these and puting together various possible options assessing the impact of each option on inflation, national budgets, the GCC common currency, GCC solidarity and international relations," says the report.

There is a possibility of the UAE, Saudi Arabia, Qatar and Bahrain shifting together to a common fixed exchange rate against the dollar to facilitate the creation of a GCC common currency.

"We believe that GCC currencies will be revalued at rates left up to the individual governments but in line with a move towards the creation of a GCC common currency. The common currency could start as early as 2010 with a number of core members taking part, while the remaining members would join at a later stage when they are ready," the Strategy Garden report said.

The report concludes that after revaluation, the dollar peg will be maintained, even with the scenario of a one-off readjustment.

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