What Is the AED (United Arab Emirates Dirham)?

The AED is the currency abbreviation for the United Arab Emirates dirham, the official currency of Dubai and other Emirates. It is often presented with the symbol Dhs or DH. The United Arab Emirates Dirham has been used since 1973, when it replaced several currencies, such as the Dubai riyal and the Qatar riyal.

Basics of AED (United Arab Emirates Dirham)

The United Arab Emirates dirham is made up of 100 fils. The dirham is available in denominations of 5, 10, 20, 50, 100, 200, 500, and 1,000. Coin denominations are 1, 25, and 50 fils, although it's interesting to note that coins with a value of less than 10 are rarely used.

The Central Bank of the United Arab Emirates issues the country's banknotes. To combat counterfeiting, several watermarks are used, including the national emblem appearing on the obverse of each note. Any action "deemed an insult" to the national emblem is considered a punishable crime and that includes counterfeiting. The emblem is a golden falcon with a disk surrounded by seven stars in its center and seven feathers to represent each of the Emirates.

The AED and United Arab Emirates Economy

The United Arab Emirates had a gross domestic product of about $421 billion in 2019, ranking 25th on the World Economic Forum's Global Competitiveness Index. With the exception of Dubai, the emirates rely overwhelmingly on oil exports and natural gas reserves, although they have been making steady progress toward diversification.

Investors consider the UAE dirham to be among the world’s most stable currencies in terms of exchange rate stability. It has been pegged to the United States dollar since 1997 at a rate of 1 U.S dollar to 3.6725 AED.

Why Peg to the USD?

Because of the country's reliance on the oil industry, officials see it advantageous to peg its currency to the U.S. dollar. Remember oil prices are denominated in U.S. dollars. By pegging its currency against the greenback, the UAE government can reduce the volatility of its exports. The country's economic indicators and current account should be maintained at optimal levels to maintain the peg. For example, as of this writing, the UAE government is running a current account surplus to its GDP.

But the peg can also work against government strategy. For example, oil prices collapsed in 2015 and reduced revenues for GCC countries. Many countries toyed with the idea of devaluing their currency against the U.S. dollar. The devaluation would boost local revenue because U.S. dollars collected from oil sales could be repatriated for more dirhams.