Greenspan tells Gulf to drop dollar

Greenspan tells Gulf to drop dollar http://english.aljazeera.net/NR/exeres/FC515689-75CC-4121-BD37-2A84E5BF0C60.htm

Greenspan, right, says inflation rates in Gulf states will fall if they drop their US dollar pegs [AFP]

Alan Greenspan, the former chairman of the US central bank, or Fed, has said that inflation rates in Gulf states, which are reaching near record levels, would fall "significantly" if oil producers dropped their US dollar pegs.

Speaking at an investment conference on Monday in Jedda, Saudi Arabia, he said the pegs restrict the region's ability to control inflation by forcing them to duplicate US monetary policy at a time when the Fed is cutting rates to ward off an economic downturn.

Debate is rife in the Gulf on how to tackle inflation.

Levels have hit seven per cent in Saudi Arabia, the highest in 27 years and a 19-year peak of 9.3 per cent in the United Arab Emirates in 2006.

Free float?

"In the short term free floating ... will not fully dissipate inflationary pressure, although it would significantly do so," Greenspan said.

Saudi and UAE central bank chiefs are in favour of retaining dollar pegs, but Sheikh Hamad bin Jassim bin Jabr al-Thani, the prime minister of Qatar, is pushing for regional currency reform to avert possible unilateral revaluations designed to curb inflation.

According to Hamad Saud al-Sayyari, governor of the Saudi central bank, floating the Saudi riyal would not be appropriate for an economy that relies on oil exports.
   
"Floating is beneficial when the economy and exports are diverse ... as for the kingdom it remains reliant on the export of a single commodity," he said.
   
Investor attraction

The dollar peg was also defended by Sultan Nasser al-Suweidi, the UAE central bank governor, at a conference in Abu Dhabi on Monday.

He said the policy was helping Gulf states attract foreign investments.

"They did very well for our economies because it has led to more capital flows," al-Suweidi said.
    
Qatar, has the region's highest inflation, and is considering the revaluing of the Qatari riyal to combat inflation currently at 13.74 per cent.
   
The exchange rate contributes to about 40 per cent of inflation in Qatar, where the riyal is believed to be 30 per cent undervalued.

Qatar's stand

"We prefer always to act with all the GCC countries," Sheikh Hamad said.

Qatar currently chairs the six-nation Gulf Cooperation Council.
   
"It's now time for the Gulf to have its own currency," he said.

Sheikh Hamad said such a currency should be "like the Japanese yen or other currencies".
   
Deutsche Bank said last month that both Qatar and the UAE will probably cut ties to the US dollar this year and track currency baskets as Kuwait did last May.

Source: Agencies

Athugasemdir

[Baldur Fjölnisson, 28.2.2008 kl. 19:49]

Sir Alan’s $100,000 Speaking Fee Cost Global Traders and Investors Trilions.

"Our senior monetary troublemaker in charge blew-up markets world-wide on Monday telling an investment conference in Jeddah, Saudi Arabia they should drop their dollar pegs. This remarkably stupid statement sold the dollar, rallied the Canadian, Euro and Swiss currencies and put the spurs to precious metals. While the statement was good advice for the Saudi’s, it’s exactly the kind of thing you never say in public. Repercussions were instantaneous creating havoc in Asia, Europe and the United States. Fallout drove the U.S. Dollar below recent major support at 75.00 creating untold problems for the Federal Reserve, U.S. Treasury and central banks world-wide. The European Central Bank is in a world of hurt as the Euro has now climbed above 150 to 1.50850 (reyndar 1.5220 - B.F.). The price of 1.50 has long been a line in the sand for the Euro. Now it’s crossed over and Mr. Dollar is sinking toward 70.70. The Saudi’s may cool-off their inflation with this move, but Euroland and the U.S. will get hammered with it." - Traderrog

[Baldur Fjölnisson, 29.2.2008 kl. 14:33]

"""UBS said financial companies are likely to have at least $600 billion in write-downs, according to Bloomberg.com.  This is far more than the current total of write-downs, which stands at more than $160 billion."""

briefing.com 29.02.2008