Has the UAE Central Bank Followed an Active Monetary Policy During the COVID-19 Crisis?

Author: Muhammad Vakil

P&P Mentor: Shreya Sriram

Abstract
The COVID-19 crisis has disrupted the UAE's economy while declining oil prices have slashed any hopes of a timely recovery. This paper argues that stimulus packages imposed have been inadequate due to the UAE's reliance on international finance and trade. Most significantly, the UAE's fixed exchange rate regime implies that the central bank lacks monetary autonomy to support its domestic economy sufficiently. The pandemic highlights the need for structural reforms, for instance, restricting the free flow of international capital, allowing the UAE to adopt a floating exchange rate, and giving back the central bank's autonomy to design monetary policy based on the economic and financial needs of the UAE. Recent studies demonstrate emerging economies' tendency to lean towards more, rather than less, financial liberalization even after a global crisis. However, with more frequent international shocks and anti-globalization trends worldwide, the UAE should consider reforms that steer the country towards autarky.

Keywords: the United Arab Emirates, coronavirus, closed economy, financial liberalization, monetary policy