50 Dirhams (National Center for Documentation and Research) – United Arab Emirates

In 2008, the United Arab Emirates faced a significant monetary policy challenge centered on its currency peg. Since 1997, the UAE dirham had been formally pegged to the US dollar at a fixed rate of approximately AED 3.67 per dollar. This policy provided stability and was a cornerstone for the UAE's rapid economic growth, particularly in Dubai and Abu Dhabi, by anchoring inflation expectations and facilitating trade and investment inflows. However, the peg also meant importing the monetary policy of the United States Federal Reserve.

The core issue in 2008 was a stark policy divergence: while the US Federal Reserve was aggressively cutting interest rates to combat the unfolding global financial crisis and domestic recession, the UAE's economy was overheating. Inflation in the Emirates soared to a record high of 11.1% in 2008, driven by a booming real estate sector, high oil prices in the first half of the year, and rising food and rental costs. The Fed's rate cuts forced the UAE Central Bank to lower its own rates in step to maintain the peg, thereby exacerbating domestic inflation by making borrowing cheaper and fueling further speculative investment, even as local economic conditions demanded tighter monetary policy.

Consequently, 2008 was a year of intense speculation and debate about whether the UAE would abandon or revalue its dollar peg. Market pressure and analyst commentary were frequent, with many arguing a revaluation would help curb inflation. However, the UAE authorities remained steadfast in their commitment to the peg, emphasizing long-term stability over a short-term fix. The government chose to address inflation through fiscal measures—such as increasing public sector wages and implementing subsidies—and by allowing greater appreciation pressure to be absorbed within the narrow band of the peg. The global financial crisis that intensified in late 2008 ultimately dampened inflationary pressures, ending the immediate revaluation debate but leaving a lasting discussion on the long-term suitability of the dollar peg for the UAE's economy.