Gulf told to review dollar peg after recovery
Sep 27, 2009 at 04:04
Gulf Cooperation Council (GCC) members should review their currency peg to the U.S. dollar once their economies have recovered from the global financial crisis, the Dubai government’s leading economist said in remarks published on Sunday.
“Now is not the time to do so but as soon as we are in recovery the UAE and the Gulf should review the strong dollar peg policy,” Nasser al-Saidi, chief economist at the Dubai International Financial Centre (DIFC), told UAE daily the National.
Saidi said the peg to the dollar “has led to a perverse monetary policy”.
All Gulf states bar Kuwait peg their currencies to the dollar, forcing central banks in the region to track Fed monetary policy.
Currently low U.S. interest rates suit Gulf states as they look to spur economic growth, but as their economies recover a fixed exchange rate risks stoking inflation.
Inflation soared to record highs across the Gulf last year on the back of the Fed’s expansionary monetary policy at a time when regional central banks should have been hiking interest rates.
Soaring inflation led to widespread calls for Gulf states to sever ties to the greenback.
The dollar peg was blamed for driving up credit growth due to low interest rates, as well as for pushing up imported inflation as the value of the dollar fell against global currencies.
Sep 27, 2009 at 04:04
Gulf Cooperation Council (GCC) members should review their currency peg to the U.S. dollar once their economies have recovered from the global financial crisis, the Dubai government’s leading economist said in remarks published on Sunday.
“Now is not the time to do so but as soon as we are in recovery the UAE and the Gulf should review the strong dollar peg policy,” Nasser al-Saidi, chief economist at the Dubai International Financial Centre (DIFC), told UAE daily the National.
Saidi said the peg to the dollar “has led to a perverse monetary policy”.
All Gulf states bar Kuwait peg their currencies to the dollar, forcing central banks in the region to track Fed monetary policy.
Currently low U.S. interest rates suit Gulf states as they look to spur economic growth, but as their economies recover a fixed exchange rate risks stoking inflation.
Inflation soared to record highs across the Gulf last year on the back of the Fed’s expansionary monetary policy at a time when regional central banks should have been hiking interest rates.
Soaring inflation led to widespread calls for Gulf states to sever ties to the greenback.
The dollar peg was blamed for driving up credit growth due to low interest rates, as well as for pushing up imported inflation as the value of the dollar fell against global currencies.