Saturday, July 10, 2010GCC urged to keep dollar currency peg
Gulf oil producers should keep currencies pegged to the dollar because of the euro decline and the fact that the US currency is the official price of their crude exports, Oman’s Central Bank Executive President has said.
Hamood bin Sangour Al Zadjali also urged banks in the six-nation Gulf Co-operation Council (GCC) to consider merger to create stronger financial units and face the repercussions of the global fiscal crisis.
Quoted by the Qatari Al Sharq Arabic language daily, Zadjali said Oman would stick to its policy of pegging its rial to the US dollar.
“We are continuing this policy and will not change it…I think it is also in the interest of the other Gulf countries to keep the dollar peg…given their economic conditions and the fact that their oil exports are priced in dollar, it is natural that they continue pegging their currencies to the dollar,” he said.
“At present, all GCC currencies are pegged to the US dollar except the Kuwaiti dinar…I believe they are sticking to their decision to keep that peg, which is in their interest following the recent sharp fall in the euro.”
Kuwait had pegged its currency to the US dollar before it reverted to a basket of currencies two years ago to tackle soaring inflation rates caused mainly by a weakening in the dollar value, soaring global prices and other factors.
Kuwait, along with Saudi Arabia, Bahrain and Qatar announced the creation of a landmark monetary union early this year but has not yet made clear whether a planned single currency would be tied to the dollar or a basket.
In a recent study, the International Monetary Fund has urged GCC countries, which also include the UAE and Oman, to keep the dollar peg for the time being, saying it has contributed to stabilising their economic and financial systems.
In his comments, Zadjali described the performance of banks in the GCC as comfortable but noted that their “large number and weak capital base is not encouraging.” He said this problem could be tackled through mergers.
“I think the idea of mergers among the GCC banks at this stage could be right and even required so they can face the effects of the crisis,” he said.
“I call on banks in the GCC and other Arab nations to enter strategic alliances and partnerships so they can expand their capital base and fund regional projects…expanding globally require these banks to largely increase and strengthen their financial, human and technical resources.”
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