Saudi cbank says dollar peg beneficial

Saudi cbank says dollar peg beneficial

Riyadh: 10 hours and 13 minutes ago


Saudi Arabia's currency peg to the US dollar "benefits" the kingdom and will remain as long as the greenback remains the main reserve currency globally, the central bank governor was quoted as saying on Wednesday.

Muhammad Al-Jasser's remarks were published in Arabic daily Alrroya Aleqtossadiya.

"The US dollar is still the main reserve currency globally. Pegging the Saudi riyal to it benefits the kingdom until a major rival (currency) appears," Al-Jasser told the Saudi newspaper.

The greenback has dropped to a 15-month low against a basket of six major currencies this week, prompting a rare comment on its value by US Federal Reserve Chairman Ben Bernanke on Monday.

The peg issue is gaining momentum again as the dollar retreats and oil prices recover, helping economies in the world's top oil exporting region emerge from a downturn.

On Tuesday, Kuwait -- which dropped its dollar peg in 2007 in favour of a currency basket which includes the greenback -- said that Gulf countries will discuss pegging their planned single currency to a basket instead of the US dollar.

The newspaper also quoted Jasser as saying that "Saudi Arabia's fiscal reserves remain high."

"We have not encountered any financial problems and are still in a very comfortable position and do not need to issue any debt instruments at present," Al-Jasser said.

The Saudi central bank, known as the Saudi Arabian Monetary Authority (Sama), kept interest rates unchanged in the third quarter, viewing a further rate cut as unlikely to spur lending while a rate hike was unnecessary given tepid inflation.

"Saudi's monetary policy fits the current circumstances, and reducing the basic lending rates was an attempt to curb the impact of the financial crisis," Al-Jasser said in the newspaper on Wednesday, adding that the authority will take "adequate measures to ensure stability." - Reuters

GCC Currency – Peg to “Basket”?
Posted on Nov 18th 2009 by Patrick Ryan.

In 2001 the Gulf Cooperation Council (GCC) countries — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE “agreed to set up a European Union-style currency union in order to boost trade and allow for a more independent monetary policy” by 2010. Oman dropped out of the monetary union plan about two years ago indicating it might not be able to abide by the conditions for participation.

In April 2008, following a GCC central bankers meeting, AMEInfo.com took a look at the progress being made in pursuit of a GCC currency union, asking the question, “Will a long-term currency union be established with a peg to a devaluing US dollar at a time when the Gulf currencies should be appreciating to stop their economies overheating? At the time UAE central bank governor Sultan bin Nasser Al Suwaidi opined, “There is no intention for the time being to un-peg our currencies from the U.S. dollar because if you look at currencies worldwide, you will find that all of them keep fluctuating, rising at tome times and declining at others .. So the decline in the dollar is a temporary phenomenon and we should not build long-term decisions on short-term issues.”

The UAE dropped its plans to participate in the monetary union following the selection of Riyadh in May as the location for the Monetary Council, the GCC central bank headquarters.

This week Kuwaiti officials have floated the notion that the GCC currency may not necessarily be pegged to the U.S. dollar, but instead could be pegged to a basket of currencies. In May 2007 Kuwait rattled plans for a currency union when it “unpegged” its dinar from the dollar in an inflation-fighting move and opted for a basket mechanism.

The GCC currency union target is still officially 2010 but it is likely to slip to about 2013 at the earliest. There’s no name yet but some are speculating it will be the “Khaleej” or gulf.