The UAE dirham was first put into circulation on May 19, 1973.
Image Credit: Gulf News Archives

Dubai: The United Arab Emirates dirham, the currency of the United Arab Emirates, was put into circulation in 1973.

Officially abbreviated as AED, its other abbreviations include Dh and Dhs. The dirham is subdivided into 100 fils.

Before the establishment of the Central Bank of the United Arab Emirates in 1980, the country had a Currency Board established in accordance with Union Law No. 2 of 1973, which was replaced by Law No. 10 of 1980 concerning the Central Bank, the monetary system and Organization of the Bank.

The Currency Board issued the national currency dirham in 1973 for the first time. Prior to this, the UAE had currencies such as the Bahraini dinar and the Qatari and Dubai riyal in circulation.

The UAE dirham was first introduced into circulation on May 19, 1973. The Qatar and Dubai riyal had been in circulation since 1966 in all emirates except Abu Dhabi, where the dirham has replaced the Bahraini dinar.

Banknotes and coins

The Central Bank of the United Arab Emirates issues the country’s banknotes and coins.

To combat counterfeiting of paper money, a watermark of the national emblem and several other security features are used on each note. Currently, the CBUAE issues banknotes in denominations of 5, 10, 20, 50, 100, 200, 500 and 1000.

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The coins are issued in denominations of 1, 50 threads and 25 threads. The 1, 5 and 10 thread coins are not used in everyday life.

The coins are issued in denominations of 1, 50 threads and 25 threads. The 1, 5 and 10 thread coins are not used in everyday life. Thus, all amounts are rounded to the next higher or lower multiple of 25 threads.

In addition to ordinary coins, since 1976 the Currency Board and then the CBUAE have minted several commemorative coins celebrating different events in the United Arab Emirates.

Respect for currency, infractions and penalties

The national currency of the United Arab Emirates bears the name and emblem of the United Arab Emirates; therefore, moral value is greater than material value, and any behavior considered insult to currency is a crime punishable by UAE law.

In accordance with Article 141 of Federal Law No. 14 of 2018 on the Central Bank and the Organization of Financial Institutions and Activities, anyone who publicly and intentionally mutilates, destroys or tears currency is punished with a fine of one thousand dirhams ( 1,000 AED) or 10 times the value of mutilated, destroyed or torn currency, whichever is greater.

The laws and laws of the United Arab Emirates have criminalized all practices and acts that violate public morals or underestimate the emblem of the state as well as its national currency. According to article 176 of the Federal Penal Code, anyone who insults, mocks, damages the reputation, prestige or status of the State, its flag, its emblem, its symbols or any of its institutions, will be punishable by a minimum of 10 years and a maximum of 25 years and incur a fine of at least 500,000 AED.

The anchor of the currency and its justification

The UAE dirham is pegged to the US dollar. Currency parity is a policy in which a national government sets a specific fixed exchange rate for its currency with a foreign currency or a basket of currencies.

On January 28, 1978, the dirham was officially pegged to the Special Drawing Rights (SDRs) of the International Monetary Fund (IMF). In practice, it is pegged to the US dollar most of the time. Since November 1997, the dirham has been pegged to the US dollar at the rate of 3.6725 dirhams, which corresponds to approximately 1 dirham = 0.272294 dollar.

The peg of a currency stabilizes the exchange rate between countries. This allows long-term predictability of exchange rates for business planning. However, currency parity can be difficult to maintain and distort markets if it is too far from the natural market price.

Due to the country’s dependence on the oil industry, officials believe it is beneficial to peg its currency to the US dollar. Since oil prices are denominated in US dollars, by pegging its currency to the greenback, the UAE government can reduce the volatility of its exports.

The country’s economic indicators and current account should be kept at optimal levels to maintain the anchor. Any sudden rise or fall in the current account could exert upward and downward pressure on the anchors. The CBUAE adjusts interest rates in tandem with US Fed rates to avoid speculative pressure on the currency.



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