UAE to keep peg despite US go-ahead for currency reform
Khaleej Times - 29/05/2008
(MENAFN - Khaleej Times) Amid reports that US has given the green signal for the depegging of GCC currencies from a tumbling dollar, the UAE reaffirmed its stance on keeping its currency pegged to the greenback.
UAE Central Bank Governor Sultan Bin Nasser Al Suweidi, responding to remarks made by Merrill Lynch about a recent US Treasury report to Congress, said there was not any move or trend for a depeg or a revaluation.
Quoting the US Treasury report, Merrill Lynch has said the US gave the GCC the green light to change their foreign exchange policies, a move which will have far reaching impact on the currency valuations of the UAE and other Gulf countries. Al Suweidi was quoted by a local Arabic newspaper that the Merrill Lynch report was "weak and lacks transparency."
The report by the US Treasury to Congress on international economic and exchange rate policies, also known as the FX manipulation report, indicated that US has effectively given Gulf countries, reeling under imported inflation resulting from a depreciation of their dollar pegged currencies, the go ahead for making changes to their foreign exchange policies.
An analyst with Merrill Lynch has said the US is helping to lift the political barriers to exchange rate regime changes in the region. "Indeed, if the US were comfortable with the idea of GCC currency appreciation, we believe it would ultimately make it much easier for the GCC authorities to break the dollar peg from a diplomatic standpoint. This is supportive of our bullish view on the GCC currencies. We have re-entered our trade recommendation of a six-month forwards basket of long Kuwait dinar and UAE dirham versus short dollar."
In its report entitled "U.S. Green Light for the GCC," the investment bank said the UAE and Qatar will probably move to a currency basket in the next few months, with their respective currencies appreciating five percent before the end of the year.
According to Merrill Lynch, the US report highlights the rigidities in GCC currencies. "This represents a modest change in focus, but we believe a big signal for the currencies of the GCC. The report also highlights the increased comfort regarding the dollar. There had been market concerns that the US was reluctant to push the GCC countries into a change in currency regime given the possible negative effects on the greenback. This report suggests that those risks have lessened," ML said.
"The report has not cited any country as a manipulator since China in 1994. Studies show that being named is partly due to fundamentals but also to politics. Thus, we believe the new inclusion in the findings section of the report is important."
ML said: "With the US sending a green light for currency regime change, the focus may shift to domestic constraints. We recognise that there may still be some significant domestic resistance to exchange rate regime changes, but overall we believe that a number of GCC countries will ultimately be forced by the market to let their currencies strengthen."
The Treasury report highlighted the increase in inflation in GCC states which has intensified discussions in the region on revaluation or adjustments in currency rate regimes.
"As stressed in the Treasury report, some adjustment to real effective exchange rates in the region - especially in Qatar and the UAE - is taking place through rising prices. The root causes of inflation in the GCC are multiple, including higher food prices, strong demand pressures and abundant domestic liquidity.
Friday, May 30, 2008
Tuesday, May 27, 2008
US warms up to Gulf currency reforms
US warms up to Gulf currency reforms
By Babu Das Augustine, Banking Editor
Published: May 26, 2008, 00:02
Dubai: The US Treasury's recent report to Congress on International Economic and Exchange Rate Policies (FX manipulation report) hints at a potential US nod for currency reforms in the Gulf.
Analysts said that the report points to a shift in the US Treasury's approach to Gulf countries' exchange rate policies in the context of rising inflation and upward pressure on real exchange rates.
"The US recognises significant appreciation pressures on the Gulf Cooperation Council (GCC) countries. From a fundamental standpoint, we believe the US authorities have hinted that there is a need for more exchange rate flexibility," said Emma Lawson and Benoit Anne, currency analysts of Merrill Lynch.
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The report does not suggest any solution to the undervalued Gulf currencies. However, analysts believe that the very fact that the Treasury has admitted that the Gulf currencies are undervalued hints at political support for change.
"The latest report highlights the rigidities in the GCC currencies, specifically Saudi Arabia. This represents a modest change in focus, but we believe a big signal for the currencies of the GCC," said Lawson and Anne.
The US investment bank said the UAE and Qatar will probably move to a currency basket in the next few months, with their respective currencies appreciating five per cent before the end of the year. Saudi Arabia is unlikely to follow until late next year.
The Treasury report recognises the need for some adjustment to real effective exchange rates in the region, especially in the UAE and Qatar where prices are rising as a result of rigid exchange rates.
"We believe that if the US were comfortable with the idea of GCC currency appreciation, it would ultimately make it much easier for the GCC authorities to break the dollar peg from a diplomatic standpoint," Merrill Lynch said.
Objectives: fx manipulation report
The FX Manipulation Report was aimed at determining if trading partners were manipulating currencies but also to outline the currency practices of the major trading partners of the US.
The report examines whether countries manipulate the exchange rates for purposes of preventing the balance of payments adjustments or gaining unfair competitive advantage in international trade.
If any country is found to be a currency manipulator, it is required to hold talks with the US government.
The report has not cited any country as a manipulator since 1994 (China). Since the launch of the report 14 years ago, the only countries that have been asked to modify their foreign exchange stances have been China, Japan, South Korea, Taiwan, Malaysia, Hong Kong, Singapore and Russia.
Do you expect the US to support
By Babu Das Augustine, Banking Editor
Published: May 26, 2008, 00:02
Dubai: The US Treasury's recent report to Congress on International Economic and Exchange Rate Policies (FX manipulation report) hints at a potential US nod for currency reforms in the Gulf.
Analysts said that the report points to a shift in the US Treasury's approach to Gulf countries' exchange rate policies in the context of rising inflation and upward pressure on real exchange rates.
"The US recognises significant appreciation pressures on the Gulf Cooperation Council (GCC) countries. From a fundamental standpoint, we believe the US authorities have hinted that there is a need for more exchange rate flexibility," said Emma Lawson and Benoit Anne, currency analysts of Merrill Lynch.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The report does not suggest any solution to the undervalued Gulf currencies. However, analysts believe that the very fact that the Treasury has admitted that the Gulf currencies are undervalued hints at political support for change.
"The latest report highlights the rigidities in the GCC currencies, specifically Saudi Arabia. This represents a modest change in focus, but we believe a big signal for the currencies of the GCC," said Lawson and Anne.
The US investment bank said the UAE and Qatar will probably move to a currency basket in the next few months, with their respective currencies appreciating five per cent before the end of the year. Saudi Arabia is unlikely to follow until late next year.
The Treasury report recognises the need for some adjustment to real effective exchange rates in the region, especially in the UAE and Qatar where prices are rising as a result of rigid exchange rates.
"We believe that if the US were comfortable with the idea of GCC currency appreciation, it would ultimately make it much easier for the GCC authorities to break the dollar peg from a diplomatic standpoint," Merrill Lynch said.
Objectives: fx manipulation report
The FX Manipulation Report was aimed at determining if trading partners were manipulating currencies but also to outline the currency practices of the major trading partners of the US.
The report examines whether countries manipulate the exchange rates for purposes of preventing the balance of payments adjustments or gaining unfair competitive advantage in international trade.
If any country is found to be a currency manipulator, it is required to hold talks with the US government.
The report has not cited any country as a manipulator since 1994 (China). Since the launch of the report 14 years ago, the only countries that have been asked to modify their foreign exchange stances have been China, Japan, South Korea, Taiwan, Malaysia, Hong Kong, Singapore and Russia.
Do you expect the US to support
Ditching dollar peg a boon for region
Ditching dollar peg a boon for region
by Talal Malik on Monday, 26 May 2008
POSITIVE MOVE: Gulf states depegging their currencies from the US dolar would be a boon for the region, analysts said. (Getty Images)Gulf states looking at depegging or revaluing their currencies will find the impact is largely positive for the economy, senior economists told ArabianBusiness.com on Monday.
US investment bank Merrill Lynch said on Sunday that the UAE and Qatar would probably depeg from the US dollar and move to a currency basket in the next few months, after the US gave the go-ahead in order to fight inflation.
All Gulf states, bar Kuwait, peg their currencies to the dollar, which forces central banks to follow US monetary policy and limits their ability to bring down inflation, which has soared to record highs across the Gulf.
"I think there would very few losers from an adjustment because the region is so import-dependent and because such a large proportion of the population is expatriate and remitting much of their income," said Simon Williams, a Dubai-based economist at HSBC.
"Overall, I think it will be positive if we see any kind of monetary policy tightening," said Marios Maratheftis, regional head of research at Standard Chartered.
"If something is better for the economy as a whole, it's better in general for all."
Merrill Lynch said in their report 'US Green Light for the GCC' that whilst the UAE and Qatar would make the currency-basket move in the next few months, Saudi Arabia was unlikely to follow until late next year.
Citing a US Treasury report on the GCC, the investment bank said the US government had become more confident about the outlook for the dollar and therefore did not necessarily need Gulf support for its currency.
"We believe the inclusion effectively gives the GCC countries the green light for change," the bank said.
However, regional economists are divided over both whether and when any of the Gulf states will either revalue their currencies or drop the dollar-peg.
"Our view has always been consistently that the region is in need of monetary policy tightening in order to manage the [economic] boom more effectively," said Maratheftis about Standard Chartered's position on Gulf currencies.
"The challenges we're facing in the region are different to the challenges that the US economy is facing. Monetary policy is extremely loose which is leading to inflationary pressures.
"We think the best way of dealing with inflationary pressures is by changing the dollar-peg ideally. This would be the best solution but as the second-best solution we think a revaluation would also help."
Others said that neither the UAE nor Qatar were likely to move to a basket of currencies in the next few months.
"I think it's improbable in a 12-month time horizon," said Williams. "I don't think the Gulf states are yet persuaded by the arguments in favour of change.
"They are expecting a dollar recovery in the second half of the year to ease some of them pressures they have faced as a consequence of weakness over the last couple of years."
Investors piled into Gulf currencies from September on speculation that some of the states in the world's biggest oil-exporting region would follow Kuwait and sever their links to a dollar that was tumbling to record lows against the euro and other major global currencies.
"The US treasury in its report mentioned the Middle East and it has mentioned the GCC countries in particular," said Maratheftis, cautioning against over-excitement in the region’s markets.
"What people have failed to realise is that there regular publications of this report - the previous report was published in December last year and they said exactly the same thing."
Outside the region, Maratheftis perceived a Gulf depeg from the dollar could positively impact the greenback.
"I think the impact on the dollar would prove to be positive," he said. "Maybe initially there might be some negative sentiment and it might put the dollar under some moderate pressure, but I think this will be short-term."
Marios said that global economic imbalances were the main reason behind the dollar’s fall in the past seven years.
"Now we're seeing global unbalances widening as we speak, and I think stronger Middle East currencies will help deal with these global imbalances," he said.
'We have massive current account surpluses here [in the Gulf]. A stronger currency would help with the unwinding of these global imbalances and should hence be a positive for the dollar over the medium-term."
by Talal Malik on Monday, 26 May 2008
POSITIVE MOVE: Gulf states depegging their currencies from the US dolar would be a boon for the region, analysts said. (Getty Images)Gulf states looking at depegging or revaluing their currencies will find the impact is largely positive for the economy, senior economists told ArabianBusiness.com on Monday.
US investment bank Merrill Lynch said on Sunday that the UAE and Qatar would probably depeg from the US dollar and move to a currency basket in the next few months, after the US gave the go-ahead in order to fight inflation.
All Gulf states, bar Kuwait, peg their currencies to the dollar, which forces central banks to follow US monetary policy and limits their ability to bring down inflation, which has soared to record highs across the Gulf.
"I think there would very few losers from an adjustment because the region is so import-dependent and because such a large proportion of the population is expatriate and remitting much of their income," said Simon Williams, a Dubai-based economist at HSBC.
"Overall, I think it will be positive if we see any kind of monetary policy tightening," said Marios Maratheftis, regional head of research at Standard Chartered.
"If something is better for the economy as a whole, it's better in general for all."
Merrill Lynch said in their report 'US Green Light for the GCC' that whilst the UAE and Qatar would make the currency-basket move in the next few months, Saudi Arabia was unlikely to follow until late next year.
Citing a US Treasury report on the GCC, the investment bank said the US government had become more confident about the outlook for the dollar and therefore did not necessarily need Gulf support for its currency.
"We believe the inclusion effectively gives the GCC countries the green light for change," the bank said.
However, regional economists are divided over both whether and when any of the Gulf states will either revalue their currencies or drop the dollar-peg.
"Our view has always been consistently that the region is in need of monetary policy tightening in order to manage the [economic] boom more effectively," said Maratheftis about Standard Chartered's position on Gulf currencies.
"The challenges we're facing in the region are different to the challenges that the US economy is facing. Monetary policy is extremely loose which is leading to inflationary pressures.
"We think the best way of dealing with inflationary pressures is by changing the dollar-peg ideally. This would be the best solution but as the second-best solution we think a revaluation would also help."
Others said that neither the UAE nor Qatar were likely to move to a basket of currencies in the next few months.
"I think it's improbable in a 12-month time horizon," said Williams. "I don't think the Gulf states are yet persuaded by the arguments in favour of change.
"They are expecting a dollar recovery in the second half of the year to ease some of them pressures they have faced as a consequence of weakness over the last couple of years."
Investors piled into Gulf currencies from September on speculation that some of the states in the world's biggest oil-exporting region would follow Kuwait and sever their links to a dollar that was tumbling to record lows against the euro and other major global currencies.
"The US treasury in its report mentioned the Middle East and it has mentioned the GCC countries in particular," said Maratheftis, cautioning against over-excitement in the region’s markets.
"What people have failed to realise is that there regular publications of this report - the previous report was published in December last year and they said exactly the same thing."
Outside the region, Maratheftis perceived a Gulf depeg from the dollar could positively impact the greenback.
"I think the impact on the dollar would prove to be positive," he said. "Maybe initially there might be some negative sentiment and it might put the dollar under some moderate pressure, but I think this will be short-term."
Marios said that global economic imbalances were the main reason behind the dollar’s fall in the past seven years.
"Now we're seeing global unbalances widening as we speak, and I think stronger Middle East currencies will help deal with these global imbalances," he said.
'We have massive current account surpluses here [in the Gulf]. A stronger currency would help with the unwinding of these global imbalances and should hence be a positive for the dollar over the medium-term."
Monday, May 5, 2008
International institutions are turning away from the region because of concerns over local currency pricing.
International institutions are turning away from the region because of concerns over local currency pricing.
Experts to bring Euro perspective to Gulf
Experts to bring Euro perspective to Gulf
by Daniel Stanton on Sunday, 04 May 2008
Two senior figures involved in the European Union's currency union are to discuss what lessons can be applied in the move towards a GCC single currency.
Erwin Nierop, a lawyer by training, was involved in the establishment of three international financial institutions: the European Bank for Reconstruction and Development, the European Monetary Institute and the European Central Bank.
Most recently, he was head project manager for technical assistance to the Gulf Cooperation Council, helping to prepare a blueprint for Gulf monetary union.
Russell Krueger, a senior official at the International Monetary Fund (IMF), has extensive experience working on the statistical preparations of the European Monetary Union and has carried out research on union-building and regional financial integration projects in the Gulf, Africa and East Asia. He is currently on a one-year sabbatical leave for research on technical preparations for currency unions, with an emphasis on the lessons other regions can take from the European experience.
Both Nierop and Krueger will be speaking at the GCC Currency Forum 08, to be held on June 15 at the Monarch Hotel in Dubai.
Dr Armen Papazian, senior vice president responsible for development and innovation at Dubai International Financial Exchange (DIFX), will be delivering the keynote address.
The event is organised by ITP Events and Conferences, in association with Arabian Banking & Finance magazine. Gulf Custody Company is associate sponsor and Mayfair Pacific Asset Management is the exhibitor partner.
The event is also supported by Gulf Research Centre, the Emirates Securities and Commodities Assocation and the UAE Financial Markets Association.
by Daniel Stanton on Sunday, 04 May 2008
Two senior figures involved in the European Union's currency union are to discuss what lessons can be applied in the move towards a GCC single currency.
Erwin Nierop, a lawyer by training, was involved in the establishment of three international financial institutions: the European Bank for Reconstruction and Development, the European Monetary Institute and the European Central Bank.
Most recently, he was head project manager for technical assistance to the Gulf Cooperation Council, helping to prepare a blueprint for Gulf monetary union.
Russell Krueger, a senior official at the International Monetary Fund (IMF), has extensive experience working on the statistical preparations of the European Monetary Union and has carried out research on union-building and regional financial integration projects in the Gulf, Africa and East Asia. He is currently on a one-year sabbatical leave for research on technical preparations for currency unions, with an emphasis on the lessons other regions can take from the European experience.
Both Nierop and Krueger will be speaking at the GCC Currency Forum 08, to be held on June 15 at the Monarch Hotel in Dubai.
Dr Armen Papazian, senior vice president responsible for development and innovation at Dubai International Financial Exchange (DIFX), will be delivering the keynote address.
The event is organised by ITP Events and Conferences, in association with Arabian Banking & Finance magazine. Gulf Custody Company is associate sponsor and Mayfair Pacific Asset Management is the exhibitor partner.
The event is also supported by Gulf Research Centre, the Emirates Securities and Commodities Assocation and the UAE Financial Markets Association.
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