GCC common currency dollar peg dilemma
By Nadim Kawach on Sunday, March 16 , 2008
Gulf countries are debating whether to peg the single common currency, which is likely to be launched in 2010, to the US dollar, a senior Gulf economy official said.
Abdul Aziz Al Owaishiq, Director of the GCC Economic Integration Department, told Qatar’s Arabic language daily Al Raya that a debate within the GCC is on to decide whether to peg the planned common currency to the US dollar.
The Gulf Co-operation Council (GCC) countries, which control more than 45 per cent of the world’s oil wealth, are sticking to their original 2010 deadline to set up the currency union despite Oman’s decision to suspend its participation.
Owaishiq said GCC monetary authorities have not taken any decision yet on the link between the planned common Gulf currency and the dollar, adding it would be up to the GCC heads of state to decide on this issue.
“I would like to note that the Supreme Council has empowered the GCC monetary authority to decide on whether to peg the common currency to one or more currencies or float this currency, depending on the requirements and conditions of the coming stage.”
Owaishiq said the GCC monetary union would accelerate growth in member states. “I can tell you that pegging the GCC currencies to the US dollar does not necessarily mean their exchange rate cannot be changed against the dollar while keeping that peg,” he said.
“I believe if the change in this rate by the GCC countries is by the same percentage, then this will not affect the arrangements for the monetary union because the GCC’s proportionate exchange rates will remain fixed,” he added. GCC states have decided to keep their currencies linked to the US dollar as they pursue plans to create a landmark monetary union following the launching of the common market early this year and the customs union four years ago.
Kuwait, which had its dinar pegged to a basket of currencies for more than two decades, joined the peg two years ago before it decided to revert to the basket, in which the US dollar is believed to account for 80 per cent. Speculation has mounted over the past few months that some GCC states will appreciate their currencies against the dollar while keeping the peg in a bid to curb inflation that has surged to double-digit rates in some member economies.
“The currency union timetable is still on track for 2010. It is a decision by the GCC Supreme Council (heads of state),” he said.
Commenting on revaluation, he said a possible decision by Gulf Arab states to revalue their currencies against the weakening US dollar will not block their plans to create the Middle East’s first monetary union.
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Last Update at 10:09 pm on March 16, 2008
Tuesday, March 18, 2008
Wednesday, March 12, 2008
Qatar may revalue riyal next month
: Wednesday, 12 March, 2008, 02:18 AM Doha Time
QATAR may revalue its currency or end the peg to the US dollar next month, Qatari Central Bank officials were quoted as saying by a Dubai-based news agency yesterday.
“Everything will be clear by the end of this month because our fiscal year ends on March 31, so by April the central bank will make an announcement,” a Qatari central bank official who declined to be identified told Zawya Dow Jones.
Prime Minister HE Sheikh Hamad bin Jassim bin Jabor al-Thani last month urged Gulf Arab oil producers to bridge differences over a single currency, saying monetary union could avert possible unilateral revaluations designed to check soaring inflation.
Qatar’s riyal is undervalued by as much as 30% and currency revaluation is being studied, among several options, to check inflation, Sheikh Hamad bin Jassim said in an interview with Reuters.
Zawya Dow Jones quoted Qatari sources as saying that a revaluation or de-peg by March 31 remain open questions. But any decision to ditch the dollar will be made by the prime minister with the approval of other Gulf Co-operation Council (GCC) countries, including the United Arab Emirates, Saudi Arabia and Kuwait.
Saudi Arabia, the UAE, Qatar, Bahrain and Oman retain their currency pegs to the US dollar regardless of growing pressure to change policy in response to the greenback’s continued slide.
The UAE, the second-largest Middle East Arab economy, has set up a task force to assess the implications of de-pegging, officials at the emirates’ central bank told Zawya Dow Jones.
US Federal Reserve interest cuts expected on March 18 will add further pressure to Gulf currencies, which are straining to maintain their existing pegs to the US dollar.
“If the Fed cuts rates this month we will also have to cut rates,” the Qatari central bank official said.
Another official at the bank said Gulf central banks were organising meetings on March 19 and April 14 to discuss the issue of de-linking their currencies from the dollar.
Analysts said a revaluation, or move to a currency basket, could be announced in the first half.
“Gulf economies reached a crucial point at the beginning of this year given the dollar weakness and expectations of more aggressive interest rates cuts in the US,” said Monica Malik, director of economics at EFG-Hermes.
EFG-Hermes estimates a 60% chance of GCC currency reform, at an initial appreciation of 5-10%.
Speculation of an imminent de-peg by Qatar continues to influence the market. One-year Qatari riyal forwards traded on Monday at just under -1800 versus last year’s low of -2000.
“The substantial discount in the one-year QR forward proves the market clearly expects revaluation,” said Jason Goff, head of treasury and market sales at Emirates Bank. “The story has not gone away.”
The Qatar riyal strengthened to a seven-day high of 3.63 to the dollar after yesterday’s report.
“Combined with other recent comments that the Qatari riyal could be undervalued by around 30% this will likely to see appreciation pressure mount,” said Deutsche Bank Middle East economist Caroline Grady.
A Qatar central bank official declined to comment when Reuters called. – Reuters/ Zawya Dow Jones
QATAR may revalue its currency or end the peg to the US dollar next month, Qatari Central Bank officials were quoted as saying by a Dubai-based news agency yesterday.
“Everything will be clear by the end of this month because our fiscal year ends on March 31, so by April the central bank will make an announcement,” a Qatari central bank official who declined to be identified told Zawya Dow Jones.
Prime Minister HE Sheikh Hamad bin Jassim bin Jabor al-Thani last month urged Gulf Arab oil producers to bridge differences over a single currency, saying monetary union could avert possible unilateral revaluations designed to check soaring inflation.
Qatar’s riyal is undervalued by as much as 30% and currency revaluation is being studied, among several options, to check inflation, Sheikh Hamad bin Jassim said in an interview with Reuters.
Zawya Dow Jones quoted Qatari sources as saying that a revaluation or de-peg by March 31 remain open questions. But any decision to ditch the dollar will be made by the prime minister with the approval of other Gulf Co-operation Council (GCC) countries, including the United Arab Emirates, Saudi Arabia and Kuwait.
Saudi Arabia, the UAE, Qatar, Bahrain and Oman retain their currency pegs to the US dollar regardless of growing pressure to change policy in response to the greenback’s continued slide.
The UAE, the second-largest Middle East Arab economy, has set up a task force to assess the implications of de-pegging, officials at the emirates’ central bank told Zawya Dow Jones.
US Federal Reserve interest cuts expected on March 18 will add further pressure to Gulf currencies, which are straining to maintain their existing pegs to the US dollar.
“If the Fed cuts rates this month we will also have to cut rates,” the Qatari central bank official said.
Another official at the bank said Gulf central banks were organising meetings on March 19 and April 14 to discuss the issue of de-linking their currencies from the dollar.
Analysts said a revaluation, or move to a currency basket, could be announced in the first half.
“Gulf economies reached a crucial point at the beginning of this year given the dollar weakness and expectations of more aggressive interest rates cuts in the US,” said Monica Malik, director of economics at EFG-Hermes.
EFG-Hermes estimates a 60% chance of GCC currency reform, at an initial appreciation of 5-10%.
Speculation of an imminent de-peg by Qatar continues to influence the market. One-year Qatari riyal forwards traded on Monday at just under -1800 versus last year’s low of -2000.
“The substantial discount in the one-year QR forward proves the market clearly expects revaluation,” said Jason Goff, head of treasury and market sales at Emirates Bank. “The story has not gone away.”
The Qatar riyal strengthened to a seven-day high of 3.63 to the dollar after yesterday’s report.
“Combined with other recent comments that the Qatari riyal could be undervalued by around 30% this will likely to see appreciation pressure mount,” said Deutsche Bank Middle East economist Caroline Grady.
A Qatar central bank official declined to comment when Reuters called. – Reuters/ Zawya Dow Jones
Thursday, March 6, 2008
GCC to establish common stock exchange
by Joel Bowman on Tuesday, 04 March 2008
COMMON EXCHANGE: A collective Gulf stock exchange will likely come after the introduction of the common currency, experts said. The GCC may look to form a common stock exchange after establishing a currency union, planned for 2010, the head of the Abu Dhabi Securities Market (ADSM) said on Monday.
“You will see in this region a common capital market and securities market after the Gulf common currency,” Tom Healy, ADSM director general, told newswire Bloomberg, adding that the exchange would start “some years” after regional monetary union.
However, the common currency may not happen for some years after the official 2010 deadline, which many analysts believe is now impossible to meet.
The deadline was cast into doubt in 2006 when Oman indicated it would be unable to meet the required convergence criteria to participate, and was dealt a further blow in May last year when Kuwait depegged its dinar from the dollar blaming the falling US currency for driving up inflation.
Gulf states pegged their currencies to the dollar in preparation for the GCC monetary union and single currency.
Nasser Saidi, chief economist at the Dubai International Financial Centre (DIFC), said last month the deadline was "highly ambitious, largely because of the divergences in conditions within each of the GCC countries”.
Nevertheless, international investment interest in the GCC markets lends impetus to establishing a common, accessible marketplace.
Currently most countries in the region operate single country exchanges, such as the Doha Securities Market and the Saudi Stock Exchange (Tadawul), while the UAE operates two domestic exchanges and one international exchange.
Fahd Iqbal, Gulf equities analyst for EFG-Hermes Holding SAE, expects a Gulf market to occupy a broader sector space, resembling the pan-European exchange, Euronext NV.
“While I don't think the local bourses will disappear, I do see a possibility for a Euronext-style merger,” Iqbal said, according to Bloomberg.
“Fund managers still look at this region country by country, but in a couple of years they'll start looking at it by industry sector as they do in Europe."
COMMON EXCHANGE: A collective Gulf stock exchange will likely come after the introduction of the common currency, experts said. The GCC may look to form a common stock exchange after establishing a currency union, planned for 2010, the head of the Abu Dhabi Securities Market (ADSM) said on Monday.
“You will see in this region a common capital market and securities market after the Gulf common currency,” Tom Healy, ADSM director general, told newswire Bloomberg, adding that the exchange would start “some years” after regional monetary union.
However, the common currency may not happen for some years after the official 2010 deadline, which many analysts believe is now impossible to meet.
The deadline was cast into doubt in 2006 when Oman indicated it would be unable to meet the required convergence criteria to participate, and was dealt a further blow in May last year when Kuwait depegged its dinar from the dollar blaming the falling US currency for driving up inflation.
Gulf states pegged their currencies to the dollar in preparation for the GCC monetary union and single currency.
Nasser Saidi, chief economist at the Dubai International Financial Centre (DIFC), said last month the deadline was "highly ambitious, largely because of the divergences in conditions within each of the GCC countries”.
Nevertheless, international investment interest in the GCC markets lends impetus to establishing a common, accessible marketplace.
Currently most countries in the region operate single country exchanges, such as the Doha Securities Market and the Saudi Stock Exchange (Tadawul), while the UAE operates two domestic exchanges and one international exchange.
Fahd Iqbal, Gulf equities analyst for EFG-Hermes Holding SAE, expects a Gulf market to occupy a broader sector space, resembling the pan-European exchange, Euronext NV.
“While I don't think the local bourses will disappear, I do see a possibility for a Euronext-style merger,” Iqbal said, according to Bloomberg.
“Fund managers still look at this region country by country, but in a couple of years they'll start looking at it by industry sector as they do in Europe."
Saudi inflation plan to cost $21bn
by Talal Malik on Wednesday, 05 March 2008
SAUDI FINANCE: Jadwa Investment has said Saudi Arabia's plan to control inflation will cost the kingdom's treasury $21 billion over the next 3 years. (Getty Images)Saudi Arabia's plan to control inflation will cost the kingdom's treasury 80 billion Saudi riyals ($21 billion) over the next three years, Jadwa Investment said on Tuesday.
Riyadh-based Jadwa said in its monthly bulletin that the kingdom's Saudi Arabia's 17-point plan to alleviate the impact of rising prices will cost the government 13.5 billion riyals in supplemental spending and 67 billion riyals over the next three years, Saudi daily Arab News reported.
The cost will not affect public finances because the kingdom's budget surplus this year is expected to reach 187 billion riyals, it added.
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"The public sector pay rise is unlikely to prove too inflationary and the reduced fees and charges and other measures will not have a pronounced impact on the overall inflation rate," Brad Bourland, chief economist and head of research at Jadwa, said in reference to a recent series of salary hikes for state employees.
In announcing 5% salary rises for 2009 and 2010, the Saudi government is demonstrating clearly it expects inflation to remain around this level for the next three years, the report said.
Though the government paid about 170 billion riyals in wages last year, a 5% rise would increase the total government wage bill by 8.5 billion riyals for 2008. Further increases of 5% are pledged over the next two years, costing the kingdom 52 billion riyals by the end of 2010, the report said.
Bourland said many people believe that raising public salaries were a simple way for the government to compensate for the impact of inflation.
Citizens throughout the GCC have pushed for much higher wages and in some cases have received them - government wages were increased by up to 43% in Oman and federal employees in the UAE have received a 70% pay rise.
However, Jadwa said that pay rises should be driven by adjustments for the current rate of inflation and improvements in worker productivity, and that by raising them beyond this level will actually stimulate further inflation.
This is because much of the pay rise will be spent and this increase in demand will feed through into higher prices, it said.
The 15% government pay rise in August 2005 probably contributed to the current period of rising inflation, the report added.
Rent has been the main factor pushing up inflation in Saudi Arabia over the last year, Jadwa said.
The programme calls for the urgent approval of the Saudi mortgage law, which has been awaiting final ratification for some time. Most Saudis rent their property, so rising rents have eroded spending power, and mortgage laws are expected to help spur home buying.
"The recently announced measures will have some targeted benefits but they will not have a great impact on total inflation within the economy," Bourland said. "However, our forecast for average inflation in 2008 remains unchanged at 4.7%."
SAUDI FINANCE: Jadwa Investment has said Saudi Arabia's plan to control inflation will cost the kingdom's treasury $21 billion over the next 3 years. (Getty Images)Saudi Arabia's plan to control inflation will cost the kingdom's treasury 80 billion Saudi riyals ($21 billion) over the next three years, Jadwa Investment said on Tuesday.
Riyadh-based Jadwa said in its monthly bulletin that the kingdom's Saudi Arabia's 17-point plan to alleviate the impact of rising prices will cost the government 13.5 billion riyals in supplemental spending and 67 billion riyals over the next three years, Saudi daily Arab News reported.
The cost will not affect public finances because the kingdom's budget surplus this year is expected to reach 187 billion riyals, it added.
Story continues below ↓
advertisement
"The public sector pay rise is unlikely to prove too inflationary and the reduced fees and charges and other measures will not have a pronounced impact on the overall inflation rate," Brad Bourland, chief economist and head of research at Jadwa, said in reference to a recent series of salary hikes for state employees.
In announcing 5% salary rises for 2009 and 2010, the Saudi government is demonstrating clearly it expects inflation to remain around this level for the next three years, the report said.
Though the government paid about 170 billion riyals in wages last year, a 5% rise would increase the total government wage bill by 8.5 billion riyals for 2008. Further increases of 5% are pledged over the next two years, costing the kingdom 52 billion riyals by the end of 2010, the report said.
Bourland said many people believe that raising public salaries were a simple way for the government to compensate for the impact of inflation.
Citizens throughout the GCC have pushed for much higher wages and in some cases have received them - government wages were increased by up to 43% in Oman and federal employees in the UAE have received a 70% pay rise.
However, Jadwa said that pay rises should be driven by adjustments for the current rate of inflation and improvements in worker productivity, and that by raising them beyond this level will actually stimulate further inflation.
This is because much of the pay rise will be spent and this increase in demand will feed through into higher prices, it said.
The 15% government pay rise in August 2005 probably contributed to the current period of rising inflation, the report added.
Rent has been the main factor pushing up inflation in Saudi Arabia over the last year, Jadwa said.
The programme calls for the urgent approval of the Saudi mortgage law, which has been awaiting final ratification for some time. Most Saudis rent their property, so rising rents have eroded spending power, and mortgage laws are expected to help spur home buying.
"The recently announced measures will have some targeted benefits but they will not have a great impact on total inflation within the economy," Bourland said. "However, our forecast for average inflation in 2008 remains unchanged at 4.7%."
Sunday, March 2, 2008
Gulf currency union far off, says UAE
Gulf currency union far off, says UAE
Dubai: Mon, 25 Feb 2008
Gulf Arab oil producers are still at the start of forming a single currency and may not follow the European Union model, the United Arab Emirates central bank governor said on Monday.
The UAE, Saudi Arabia and four other oil producers have been working toward monetary union by a 2010 deadline that policymakers across the world's top oil-exporting region have said would be difficult, if not impossible, to meet.
'GCC monetary union is a long-term objective,' Sultan Nasser al-Suweidi told an investment conference in the UAE capital, Abu Dhabi.
'We are at the beginning of the road,' Suweidi said.
He did not say when he expected the six states to achieve the beleaguered common currency project, which was first thrown into doubt in 2006 when Oman said it would not join by the 2010 deadline.
Oman has decided not to join the union at all, its central bank governor told Reuters earlier this month.
Kuwait also broke ranks with its neighbours by dropping its peg to the dollar in May, saying the weak US currency was fuelling inflation because it was making some imports more expensive. The dollar pegs were intended to stay in place until monetary union.
Gulf states may move away from following the example of the European Union, which determined monetary union criteria in the Maastricht Treaty, Suweidi said.
'The GCC countries might not follow the example of the European Union and the euro,' he said, without giving details.
An inflation target of no more than 2 percent above the regional average is the most contentious of EU-style criteria agreed by the six states, which also include Qatar and Bahrain.
As part of the Maastricht Treaty, inflation in each European member state cannot be higher than 1.5 percentage points above the average annual inflation rate of the three member countries with the lowest rate.
Gulf inflation has surged as economic growth, spurred by record oil prices, strains capacity. Still, Gulf central banks are forced to match U.S. interest rate cuts to defend their dollar pegs, constraining their efforts to fight price rises.
Inflation in Bahrain, the lowest in the region, was about 4.1 percent in December, while in Qatar, contending with the fastest pace of price rises, inflation was just off a record at 13.74 percent in the fourth quarter.
Dollar pegs are helping Gulf states accomplish a monetary union objective of 'eliminating or reducing transaction costs', Suweidi said.
'(Gulf currencies) are pegged to the dollar and that has given the anchor that's needed to reduce the transaction cost of our currencies,' he said.
They still needed to work on payment systems, and harmonise laws in areas such as land ownership before they could form a common market -- a precursor to a common currency, he said. Gulf rulers agreed at a meeting in Doha in December to form a common market this year. - Reuters
Dubai: Mon, 25 Feb 2008
Gulf Arab oil producers are still at the start of forming a single currency and may not follow the European Union model, the United Arab Emirates central bank governor said on Monday.
The UAE, Saudi Arabia and four other oil producers have been working toward monetary union by a 2010 deadline that policymakers across the world's top oil-exporting region have said would be difficult, if not impossible, to meet.
'GCC monetary union is a long-term objective,' Sultan Nasser al-Suweidi told an investment conference in the UAE capital, Abu Dhabi.
'We are at the beginning of the road,' Suweidi said.
He did not say when he expected the six states to achieve the beleaguered common currency project, which was first thrown into doubt in 2006 when Oman said it would not join by the 2010 deadline.
Oman has decided not to join the union at all, its central bank governor told Reuters earlier this month.
Kuwait also broke ranks with its neighbours by dropping its peg to the dollar in May, saying the weak US currency was fuelling inflation because it was making some imports more expensive. The dollar pegs were intended to stay in place until monetary union.
Gulf states may move away from following the example of the European Union, which determined monetary union criteria in the Maastricht Treaty, Suweidi said.
'The GCC countries might not follow the example of the European Union and the euro,' he said, without giving details.
An inflation target of no more than 2 percent above the regional average is the most contentious of EU-style criteria agreed by the six states, which also include Qatar and Bahrain.
As part of the Maastricht Treaty, inflation in each European member state cannot be higher than 1.5 percentage points above the average annual inflation rate of the three member countries with the lowest rate.
Gulf inflation has surged as economic growth, spurred by record oil prices, strains capacity. Still, Gulf central banks are forced to match U.S. interest rate cuts to defend their dollar pegs, constraining their efforts to fight price rises.
Inflation in Bahrain, the lowest in the region, was about 4.1 percent in December, while in Qatar, contending with the fastest pace of price rises, inflation was just off a record at 13.74 percent in the fourth quarter.
Dollar pegs are helping Gulf states accomplish a monetary union objective of 'eliminating or reducing transaction costs', Suweidi said.
'(Gulf currencies) are pegged to the dollar and that has given the anchor that's needed to reduce the transaction cost of our currencies,' he said.
They still needed to work on payment systems, and harmonise laws in areas such as land ownership before they could form a common market -- a precursor to a common currency, he said. Gulf rulers agreed at a meeting in Doha in December to form a common market this year. - Reuters
Saturday, March 1, 2008
Ditching peg will ease inflation - Greenspan
by Souhail Karam and Stanley Carvalho on Monday, 25 February 2008
DITCH PEG: Greenspan said free-floating currencies would ease inflationFormer Federal Reserve Chairman Alan Greenspan said on Monday near-record Gulf Arab inflation would fall "significantly" were the oil producers to drop their dollar pegs, in contradiction to Saudi policy.
"In the short term, free floating... will not fully dissipate inflationary pressure, although it would significantly do so," Greenspan told an investment conference in Jeddah.
But Saudi Central Bank Vice-Governor Muhammed Al Jasser and UAE Central Bank Governor Sultan Nasser Al-Suweidi both said dollar pegs have served their economies well by attracting foreign investment.
"They did very well for our economies because it has led to more capital flows," Al-Suweidi told an investment conference in Abu Dhabi on Monday.
Likewise Al Jasser, questioned by newswire Reuters about the riyal/dollar peg on Sunday, said: "It just happens to be serving our economic interests and continues to do so."
The pegs restrict the Gulf's ability to fight inflation by forcing them to shadow US monetary policy when the Fed is cutting rates to ward off recession and Gulf economies are surging on a near five-fold jump in oil prices since 2002.
Inflation in Saudi Arabia, the world's largest oil exporter, hit a 27-year peak of 7% in January, while in the UAE, price rises in 2006 - the latest available figure - rose to 9.3%, at least a 19-year high.
Still, "Gulf governments should consider the implication of such a move in the long term," Greenspan said of the idea of floating their currencies.
Rifts in Gulf monetary policy widened last May when Kuwait broke ranks with its neighbours by severing its link to the dollar in favour of a basket of currencies, saying a weak dollar was driving imported inflation.
Oman has said it will not join a single currency at all, and Al-Suweidi said in November he was under mounting social and economic pressure to drop the peg.
He has since backtracked, mirroring the position of Saudi Arabia, which has in the last month introduced public sector wage increases, welfare payments and subsidies to offset the impact of inflation.
Qatar, contending with the region's highest inflation, is urging Gulf states to bridge differences over a single currency, saying monetary union could avert possible unilateral revaluations, its prime minister told Reuters on Saturday.
US economic recovery to take longer than usual
Alan Greenspan says longer growth stalls more likely economy will start to contract.
DITCH PEG: Greenspan said free-floating currencies would ease inflationFormer Federal Reserve Chairman Alan Greenspan said on Monday near-record Gulf Arab inflation would fall "significantly" were the oil producers to drop their dollar pegs, in contradiction to Saudi policy.
"In the short term, free floating... will not fully dissipate inflationary pressure, although it would significantly do so," Greenspan told an investment conference in Jeddah.
But Saudi Central Bank Vice-Governor Muhammed Al Jasser and UAE Central Bank Governor Sultan Nasser Al-Suweidi both said dollar pegs have served their economies well by attracting foreign investment.
"They did very well for our economies because it has led to more capital flows," Al-Suweidi told an investment conference in Abu Dhabi on Monday.
Likewise Al Jasser, questioned by newswire Reuters about the riyal/dollar peg on Sunday, said: "It just happens to be serving our economic interests and continues to do so."
The pegs restrict the Gulf's ability to fight inflation by forcing them to shadow US monetary policy when the Fed is cutting rates to ward off recession and Gulf economies are surging on a near five-fold jump in oil prices since 2002.
Inflation in Saudi Arabia, the world's largest oil exporter, hit a 27-year peak of 7% in January, while in the UAE, price rises in 2006 - the latest available figure - rose to 9.3%, at least a 19-year high.
Still, "Gulf governments should consider the implication of such a move in the long term," Greenspan said of the idea of floating their currencies.
Rifts in Gulf monetary policy widened last May when Kuwait broke ranks with its neighbours by severing its link to the dollar in favour of a basket of currencies, saying a weak dollar was driving imported inflation.
Oman has said it will not join a single currency at all, and Al-Suweidi said in November he was under mounting social and economic pressure to drop the peg.
He has since backtracked, mirroring the position of Saudi Arabia, which has in the last month introduced public sector wage increases, welfare payments and subsidies to offset the impact of inflation.
Qatar, contending with the region's highest inflation, is urging Gulf states to bridge differences over a single currency, saying monetary union could avert possible unilateral revaluations, its prime minister told Reuters on Saturday.
US economic recovery to take longer than usual
Alan Greenspan says longer growth stalls more likely economy will start to contract.
Thursday, February 28, 2008
Alan Greenspan
SAUDI ARABIA. Former Federal Reserve Chairman Alan Greenspan said on Monday near-record Gulf Arab inflation would fall "significantly" were the oil producers to drop their dollar pegs, in contradiction to Saudi policy.
The pegs restrict the Gulf's ability to fight inflation by forcing them to shadow US monetary policy at a time when the Fed is cutting rates to ward off recession and Gulf economies are surging on a near five-fold jump in oil prices since 2002.
Rifts are growing across the world's top oil-exporting region on how to tackle inflation which hit a 27-year peak of 7.0% in Saudi Arabia in January and a 19-year peak of 9.3% in the United Arab Emirates in 2006, the most recent figure.
"In the short term free floating...will not fully dissipate inflationary pressure, although it would significantly do so," Greenspan told an investment conference in Jeddah, Saudi Arabia's second-largest city.
Saudi and UAE central bank chiefs spoke in favor on Monday of retaining dollar pegs, while Qatar's prime minister advocated regional currency reform to avert possible unilateral revaluations designed to curb inflation.
"The economies of the Gulf and the United States are completely out of sync and that is exposing the shortcomings of the dollar peg," said Simon Williams, Middle East economist at HSBC Holdings in Dubai.
"Against a backdrop of inflation, high oil prices and low interest rates the debate over currency reform has to take on greater urgency," he said.
Floating the Saudi Riyal would not be appropriate for an economy that relies on oil exports, Saudi Central Bank Governor Hamad Saud al-Sayyari told Arabiya Television in response to Greenspan's suggestion.
"Floating is beneficial when the economy and exports are diverse....as for the Kingdom it remains reliant on the export of a single commodity," Sayyari said.
Dollar pegs were helping Gulf states attract foreign investments, UAE Central Bank Governor Sultan Nasser Al Suweidi added during a speech in the UAE capital, Abu Dhabi.
"They did very well for our economies because it has led to more capital flows," Suweidi said on Monday.
Still, "Gulf governments should consider the implication of such a move in the long term," Greenspan said of the idea of floating their currencies.
Qatar, contending with the region's highest inflation, is studying revaluing its Riyal among options to combat inflation that hit 13.7% in the fourth quarter, Sheikh Hamad bin Jassim bin Jabr Al Thani told Reuters late on Saturday.
The exchange rate contributes to about 40% of inflation in Qatar, where the Riyal is 30% undervalued, Hamad said.
"We prefer always to act with all the GCC countries," Sheikh Hamad, whose country currently chairs the six nation-Gulf Cooperation Council, said.
"It's now time for the Gulf to have its own currency," he said, adding the Gulf currency should be "like the Japanese yen or other currencies."
Both Qatar and the UAE are likely to sever their links to the US Dollar this year and track currency baskets as Kuwait did last May, Deutsche Bank said last month.
Divergence in Gulf monetary policy widened last May when Kuwait broke ranks with its neighbors by severing its link to the dollar in favour of a basket of currencies, saying a weak dollar was driving imported inflation.
Oman has said it will not join a single currency at all, and Suweidi said in November he was under mounting social and economic pressure to drop the peg.
He has since backtracked, mirroring the position of Saudi Arabia, which has in the last month introduced public sector wage increases, welfare payments and subsidies to offset the impact of inflation.
Inflation in the UAE last year likely rose to 10.9%, National Bank of Abu Dhabi said on Sunday
The pegs restrict the Gulf's ability to fight inflation by forcing them to shadow US monetary policy at a time when the Fed is cutting rates to ward off recession and Gulf economies are surging on a near five-fold jump in oil prices since 2002.
Rifts are growing across the world's top oil-exporting region on how to tackle inflation which hit a 27-year peak of 7.0% in Saudi Arabia in January and a 19-year peak of 9.3% in the United Arab Emirates in 2006, the most recent figure.
"In the short term free floating...will not fully dissipate inflationary pressure, although it would significantly do so," Greenspan told an investment conference in Jeddah, Saudi Arabia's second-largest city.
Saudi and UAE central bank chiefs spoke in favor on Monday of retaining dollar pegs, while Qatar's prime minister advocated regional currency reform to avert possible unilateral revaluations designed to curb inflation.
"The economies of the Gulf and the United States are completely out of sync and that is exposing the shortcomings of the dollar peg," said Simon Williams, Middle East economist at HSBC Holdings in Dubai.
"Against a backdrop of inflation, high oil prices and low interest rates the debate over currency reform has to take on greater urgency," he said.
Floating the Saudi Riyal would not be appropriate for an economy that relies on oil exports, Saudi Central Bank Governor Hamad Saud al-Sayyari told Arabiya Television in response to Greenspan's suggestion.
"Floating is beneficial when the economy and exports are diverse....as for the Kingdom it remains reliant on the export of a single commodity," Sayyari said.
Dollar pegs were helping Gulf states attract foreign investments, UAE Central Bank Governor Sultan Nasser Al Suweidi added during a speech in the UAE capital, Abu Dhabi.
"They did very well for our economies because it has led to more capital flows," Suweidi said on Monday.
Still, "Gulf governments should consider the implication of such a move in the long term," Greenspan said of the idea of floating their currencies.
Qatar, contending with the region's highest inflation, is studying revaluing its Riyal among options to combat inflation that hit 13.7% in the fourth quarter, Sheikh Hamad bin Jassim bin Jabr Al Thani told Reuters late on Saturday.
The exchange rate contributes to about 40% of inflation in Qatar, where the Riyal is 30% undervalued, Hamad said.
"We prefer always to act with all the GCC countries," Sheikh Hamad, whose country currently chairs the six nation-Gulf Cooperation Council, said.
"It's now time for the Gulf to have its own currency," he said, adding the Gulf currency should be "like the Japanese yen or other currencies."
Both Qatar and the UAE are likely to sever their links to the US Dollar this year and track currency baskets as Kuwait did last May, Deutsche Bank said last month.
Divergence in Gulf monetary policy widened last May when Kuwait broke ranks with its neighbors by severing its link to the dollar in favour of a basket of currencies, saying a weak dollar was driving imported inflation.
Oman has said it will not join a single currency at all, and Suweidi said in November he was under mounting social and economic pressure to drop the peg.
He has since backtracked, mirroring the position of Saudi Arabia, which has in the last month introduced public sector wage increases, welfare payments and subsidies to offset the impact of inflation.
Inflation in the UAE last year likely rose to 10.9%, National Bank of Abu Dhabi said on Sunday
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