The BI-ME eNewsletter
LOGIN:
Gulf countries should drop dollar peg, says Paul Krugman
Source: BI-ME and Bloomberg , Author: BI-ME staff
Posted: Mon May 25, 2009 9:08 pm
www alibaba.com
Meet worldwide manufacturers, wholesalers
& importers
in Alibaba now!

UAE.  Gulf states are exposing themselves to “gratuitous fluctuations” by pegging their currencies to the dollar and would be better off linking to a basket of currencies, Nobel Prize-winning economist Paul Krugman said.

“You have a region that does as much trade with the eurozone as the United States,” Krugman, an economics professor at Princeton University in New Jersey, told reporters in Dubai. “If you feel that you must have a peg, the economics suggest that it ought to be a basket that reflects trade weights.”

Saudi Arabia, the UAE, Bahrain, Qatar and Oman were under pressure to scrap or loosen links to the dollar after the US currency tumbled last year, making imports more expensive. Oil prices have more than halved since their July peak, easing inflation throughout the Gulf.

Saudi Arabia has kept the riyal pegged since 1986 and Bahrain since 1980. Kuwait is the only nation among the six Gulf Arab states to have scrapped its dollar peg, in May 2007. It now manages its dinar within a basket that includes the dollar, euro and British pound.

The UAE, the second-largest Arab economy, pulled out of the planned monetary union of oil-rich Gulf states on 20 May , dealing a blow to their goal of establishing a European-style single currency.

Krugman is not alone in advising against maintaining the dollar peg.

The Gulf countries' currency peg to the dollar is a 'terrible mistake' and will cause problems for the region as the US currency is expected to decline, Legendary global investor Jim Rogers said earlier this year.

The six Gulf Cooperation Council states should form a joint currency as soon as possible, the chairman of Singapore-based Rogers Holdings said  during a banking conference in Dubai in February.

The new currency shouldn’t be linked to any other as the region has enough foreign reserves and oil to back it up.

“You’ve got good foreign exchange reserves and a lot of oil” to back a common currency, Rogers said
 

MIDDLE EAST BUSINESS COMMENT & ANALYSIS

date:Posted: July 31, 2010
INTERNATIONAL. Peter Grauer, the Chairman and CEO of Bloomberg, is a man with a mantra and he repeats it every chance he gets: "We have an aspiration at Bloomberg to become the most influential news organisation in the world."
date:Posted: July 31, 2010
LEBANON. Half of TMT organizations find inadequate budgets to be biggest barrier to keeping information secure as cyber crime, piracy and fraud become growing global reality.
date:Posted: July 31, 2010
INTERNATIONAL. If the DJIA where to fall by more than 20% from the present level there would be further massive fiscal and monetary stimulus packages, not just in the US but worldwide.