Mounting US debt 'threatens' Saudi investment: Experts
Arab News - 10 June, 2011
Economists have warned Saudi investors that mounting US debt and a weakening dollar is putting at risk a traditional safe haven for investment: US treasury bonds, which make up 70 percent of Saudi investment in the US.
Economists told Al-Eqtisadiah, a sister publication of Arab News, they believed that the hegemony of the US dollar in the world economy would not last long in light of $ 8 trillion in US debt.
Financial expert Raja Al-Marzouki said the declining US dollar would have a negative impact on Saudi investments abroad.
"As a result all investments and deposits would diminish, affecting Saudis' income, purchasing power and profitability," he said, predicting the decline of the dollar would continue. "Saudi investors must be aware of the danger posed by investing in a single currency."
According to him, there is no single major currency to replace the dollar and expected a basket of currencies would control the world economy in the future. He suggested that Saudis must distribute their investment in different currencies to reduce the impact of a falling dollar.
In the event of a basket of currencies replacing the dollar, it should include those from developing countries, considering their increasing contribution to the world economy, Al-Marzouki said.
Abdul Rahman Al-Sanie, an economics professor at the College of Business Administration, advised Saudi investors to withdraw their investment in the US as quickly as possible before it is too late.
"For the last 20 years the US dollar has been in a falling mode as a result of the country's economic and political policies, such as the Gulf War, the war in Afghanistan and Iraq, and the US banking crisis, which resulted in increasing the country's public debts to $ 8 trillion."
Al-Sanie believed that the dominance of the dollar would not last more than five years. "We have to review our investment in the dollar," he said. "About 30 percent of our foreign investment is in the US. This is a huge amount with regard to the Saudi economy."
He expected that the G20 would remove the US dollar as the basic currency of the World Bank and propose a basket of currencies and gold reserves to strengthen the bank.
"We expect more industrialized countries to return to the previous policy of the gold standard," he added.
A central bank or nation keeps gold reserves as a store of value and as a guarantee to redeem promises to pay depositors, note holders (e.g., paper money), or trading peers, or to secure a currency.
He said there is no single currency strong enough to replace the dollar. The euro is suffering from disturbances and insolvencies in EU member countries, such as Portugal and Greece, while the yen is falling sharply in the wake of the Japanese tsunami and nuclear crisis, and the British pound sterling suffers from inflation.
Ihsan Bu-Hulaiga, an economist and a former member of the Shoura Council, said the fall in the value of the dollar would also affect investment in multinational companies.
"The general situation of the world economy is still unclear in the wake of the falling dollar and other strong currencies, and I believe that the dollar is a good option for investment — although not the best."
He also believed that investments in commodities in the US would not be affected by the falling dollar.
Arab News - 10 June, 2011
Economists have warned Saudi investors that mounting US debt and a weakening dollar is putting at risk a traditional safe haven for investment: US treasury bonds, which make up 70 percent of Saudi investment in the US.
Economists told Al-Eqtisadiah, a sister publication of Arab News, they believed that the hegemony of the US dollar in the world economy would not last long in light of $ 8 trillion in US debt.
Financial expert Raja Al-Marzouki said the declining US dollar would have a negative impact on Saudi investments abroad.
"As a result all investments and deposits would diminish, affecting Saudis' income, purchasing power and profitability," he said, predicting the decline of the dollar would continue. "Saudi investors must be aware of the danger posed by investing in a single currency."
According to him, there is no single major currency to replace the dollar and expected a basket of currencies would control the world economy in the future. He suggested that Saudis must distribute their investment in different currencies to reduce the impact of a falling dollar.
In the event of a basket of currencies replacing the dollar, it should include those from developing countries, considering their increasing contribution to the world economy, Al-Marzouki said.
Abdul Rahman Al-Sanie, an economics professor at the College of Business Administration, advised Saudi investors to withdraw their investment in the US as quickly as possible before it is too late.
"For the last 20 years the US dollar has been in a falling mode as a result of the country's economic and political policies, such as the Gulf War, the war in Afghanistan and Iraq, and the US banking crisis, which resulted in increasing the country's public debts to $ 8 trillion."
Al-Sanie believed that the dominance of the dollar would not last more than five years. "We have to review our investment in the dollar," he said. "About 30 percent of our foreign investment is in the US. This is a huge amount with regard to the Saudi economy."
He expected that the G20 would remove the US dollar as the basic currency of the World Bank and propose a basket of currencies and gold reserves to strengthen the bank.
"We expect more industrialized countries to return to the previous policy of the gold standard," he added.
A central bank or nation keeps gold reserves as a store of value and as a guarantee to redeem promises to pay depositors, note holders (e.g., paper money), or trading peers, or to secure a currency.
He said there is no single currency strong enough to replace the dollar. The euro is suffering from disturbances and insolvencies in EU member countries, such as Portugal and Greece, while the yen is falling sharply in the wake of the Japanese tsunami and nuclear crisis, and the British pound sterling suffers from inflation.
Ihsan Bu-Hulaiga, an economist and a former member of the Shoura Council, said the fall in the value of the dollar would also affect investment in multinational companies.
"The general situation of the world economy is still unclear in the wake of the falling dollar and other strong currencies, and I believe that the dollar is a good option for investment — although not the best."
He also believed that investments in commodities in the US would not be affected by the falling dollar.