USD:AED

On a warm May morning in 1973, bank tellers across a brand-new federation began sliding unfamiliar notes and coins under the glass. The paper said “United Arab Emirates Currency Board.” The units were called dirhams—100 fils to one dirham—and as they changed hands, seven emirates that had only recently united were, in a very practical sense, becoming one country. The date was 19 May 1973: day one for the UAE dirham in circulation.

Before the dirham: a monetary kaleidoscope

For decades prior, money in the Trucial States (today’s UAE) was a patchwork reflecting imperial influence, regional trade, and rapid political change. From 1959, the Gulf rupee—an India-issued variant used in Britain’s Gulf protectorates—circulated widely. It was kept at par with the Indian rupee until New Delhi, under pressure in June 1966, devalued. Overnight, fear of imported instability rippled through the Gulf, and the “Gulf rupee arrangement” unraveled. Several territories, including Dubai and others that would later join the UAE, briefly fell back on the Saudi riyal as a stopgap.

By September 1966, Qatar and Dubai created a joint Qatar & Dubai Currency Board and launched a new Qatar–Dubai riyal, replacing the Gulf rupee in most of today’s UAE except Abu Dhabi, which opted for the Bahraini dinar. This split would last until the federation.

Union—and a single money

The UAE came into being in December 1971 (with Ras Al Khaimah joining in 1972). Monetary unification followed a beat later. The federal government set up a Currency Board by Union Law No. 2 of 1973, giving it the narrow, rules-based mandate typical of currency boards: issue the national currency and keep it fully and credibly backed. That choice signaled continuity and caution to traders and banks accustomed to hard anchors.

On 19 May 1973, the Board put the UAE dirham (AED) into circulation. Conversion rules were straightforward: in Abu Dhabi, 1 Bahraini dinar = 10 dirhams; in the other emirates, the Qatar–Dubai riyal converted at par to the dirham. Those clean parities minimized frictions at shop counters, in payrolls, and across inter-emirate trade.

The first series of banknotes bore “United Arab Emirates Currency Board,” a visible reminder that monetary policy was to be conservative and mechanistic. In 1980, the Central Bank of the UAE (CBUAE) was created by Union Law No. 10 of 1980, succeeding the Currency Board and broadening the institution’s toolkit, supervision remit, and policy goals. A second issue of banknotes followed in 1982, now under the Central Bank’s name.

What a dirham looked and felt like

From the outset, coins and notes did more than denominate value—they narrated identity. Coins came in fils denominations and 1 dirham (with the now-iconic dallah coffee pot on the reverse), while notes showcased forts, dhows, and desert fauna. Over time, the Central Bank kept modernizing print quality and anti-counterfeiting features—latents, microtext, security threads—without losing the aesthetic language that made UAE money instantly recognizable.

A practical footnote: while 1, 5, and 10 fils coins exist, they’re not used in everyday life; retail totals are rounded to the nearest 25 fils—a small operational rule that keeps cash handling smooth in a high-throughput, service-heavy economy.

From board to bank: building the regime

Law No. 10 put the Central Bank in charge of “supporting the currency, maintaining its stability, and ensuring free convertibility”—a mandate well suited to a trade hub whose balance of payments would be driven by hydrocarbons and services. The bank formally began operations in December 1980, replacing the board’s narrow framework with an institution capable of bank supervision, payments oversight, and the day-to-day management of liquidity.

One of the most consequential design choices for the UAE’s money was how it would be anchored. In the late 1970s, the dirham was formally linked to the IMF’s Special Drawing Right (SDR)—the UAE authorities informed the Fund in March 1978 that the peg, set at AED 4.76190 = SDR 1, would be retroactive to 28 January 1978. In practice, the parity implied by that SDR rate matched what the market recognized anyway: a de facto dollar reference. Later IMF documentation describes the official SDR peg as running from November 1980 to February 2002, again noting the effective dollar peg beneath it. The through-line is clear: whether via SDR arithmetic or direct policy, the dirham hewed to the US dollar.

That implicit reality became explicit in November 1997, when the CBUAE fixed 1 USD = 3.6725 AED—a rate maintained ever since. It is the exchange-rate fact of life behind every supermarket shelf label, fuel invoice, and importer’s spreadsheet in the Emirates.

Why that choice? Oil—the UAE’s anchor export—is priced in dollars; a tight USD link dampens pass-through volatility, helps firms plan, and underwrites the country’s pitch as a predictable platform for capital. Dollar pegs aren’t costless (they import US monetary cycles), but for an open, investment-oriented economy with deep dollar inflows, stability often trumps the freedom to fine-tune.

The 21st-century dirham: new materials, same promise

As payments digitized, the Central Bank also kept cash state-of-the-art. In December 2021, the UAE issued its first polymer banknote, a commemorative AED 50 marking the Golden Jubilee and honoring the founding generation. In April 2022, brand-new polymer AED 5 and AED 10 followed, with upgraded security features and a sustainability message (polymer notes last longer in circulation). These are not cosmetic tweaks; they are policy choices about resilience, cleanliness, and fraud resistance in the cash cycle.

Even in the micro-details, that narrative holds. A Central Bank technical brochure, for example, explains the layered security architecture of the new AED 5—latent images that appear at certain angles, precise microtext, and visual elements keyed to national landmarks. The signal is consistent: the dirham must be trusted at first glance and verifiable under scrutiny.

A nation-building project you could hold

Seen end-to-end, the dirham’s story is a nation-building documentary told through design and regime:

• Phase 1 (1973–1980): a currency board issues a single money to replace a mosaic (Bahraini dinar in Abu Dhabi; Qatar–Dubai riyal elsewhere). The key objective: credibility.

• Phase 2 (1980–late 1990s): the Central Bank arrives; policy broadens; the legal mandate formalizes stability and convertibility; exchange arrangements speak SDR but mean USD.

• Phase 3 (1997–today): a hard USD peg at 3.6725 defines the monetary backbone, while the notes and coins keep evolving technically and aesthetically.

Threaded through are the motifs of identity: the dallah coffee pot on the 1-dirham coin, the forts and dhows on notes old and new, the bilingual scripts, the dates tying designs to pivotal moments (like the Golden Jubilee). Those are small, everyday reminders that the currency is more than an instrument—it is a shared story of union, trade, and openness.

Why the choices mattered

Three elements made the UAE’s monetary design unusually consequential:

1. Timing. The federation formed as oil revenues were transforming the Gulf. A single currency was a prerequisite for coherent banking regulation, fiscal operations, and private-sector contracts between emirates. Launching the dirham in 1973 gave the young state a clear, practical symbol of unity—one that every resident handled daily.

2. Credibility by construction. Beginning with a currency-board model signaled a bias for hard anchors and automaticity. That laid a cultural foundation for a lasting peg, even after institutional responsibilities moved to the Central Bank.

3. Predictability for a hub. Ports, airlines, re-exports, free zones—these businesses value exchange-rate quiet. The dollar peg made the dirham a low-drama unit of account for contracts and salaries, while still allowing the UAE to compete through infrastructure, regulation, and scale.

A footnote on the pre-story

One can’t fully appreciate the dirham without the 1966 devaluation shock in India. That single policy move shattered the Gulf’s inherited monetary architecture, forcing Qatar, Dubai, Abu Dhabi and neighbors into an accelerated sequence of monetary improvisations—Saudi riyals for a few months here, a new joint riyal there, a Bahraini dinar workaround elsewhere. The dirham brought closure to that period by offering a clear, state-backed unit for a federation born from compromise.

Today’s bottom line

Half a century on, the dirham is unflashy by design: solid, legible, and pegged. It has weathered oil booms and busts, a global financial crisis, and a pandemic without the exchange rate becoming a domestic pressure valve. That is the policy trade the UAE has chosen—and, on the evidence of growth, diversification, and capital inflows, a trade it has managed deliberately. In polymer or paper, with forts or spacecraft on the reverse, the dirham’s core promise hasn’t shifted since that May morning in 1973: one country, one currency, one anchor.

Sources

• Official UAE portal: launch date, denominations, rounding, and the Currency Board’s legal basis.

• Central Bank of the UAE: Law No. 10 of 1980; institutional history; second banknote issue (1982); current currency pages.

• IMF & archival notes: official SDR linkage and its timing; relationship to the de facto USD peg.

• Peg details: confirmation of the 3.6725 USD/AED rate since 1997.

• Pre-1973 landscape: Gulf rupee, the 1966 devaluation and its ripple effects; Qatar & Dubai riyal; Abu Dhabi’s Bahraini dinar.

• Polymer era: AED 50 polymer (2021) and AED 5/10 polymer (2022) press materials and bank pages.

• Design/security example: CBUAE technical leaflet (AED 5).

(Where multiple credible sources diverge on the exact start date of the SDR peg, I’ve reflected both the UAE archive note recording a retroactive peg to 28 Jan 1978 and the IMF’s description of the official SDR peg period beginning Nov 1980, noting that in practice the dirham tracked the dollar throughout.)