When will the GCC abandon the Dollar peg?

The US economy is in a dire state. It is weak in numerous ways, and I am afraid that it has still more downhill struggling to go. More so, when you hear what I have to say. Firstly, will the GCC states revalue completely? I don't think so. There are too many political ramifications. The GCC states (excl Kuwait) have kept their peg to the US Dollar for way too long, and this is primarily due to the relationship with the US. The argument is that countries like the UAE have waited too long and are now considering doing this at a time when the US dollar is at its weakest. Decoupling now will undermine confidence in the US dollar, resulting in sales of domestic assets and thus the spread widens.

The problem that the UAE has with the Dirham and the economy is that inflation is huge and continues to rise. With interest rates controlled by the US, essentially, which are being driven further and further downwards, the situation becomes unsustainable to have over a long period of time.

The Dirham will move slowly away from the Dollar, in an semitransparent basket of currencies, heavily weighted towards the Dollar initially, but then with a smaller and smaller weight, until a balanced basket of currencies exist, and the next step of decoupling from the basket will begin.

By the end of 2008, the fixed peg should end, and not a moment too soon.