07 May 2009
May 7 (Bloomberg) -- Saudi Arabia, the Arab world's largest economy, will maintain the local currency's link to the U.S. dollar, central bank Governor Mohammed al-Jasser said today.We are committed to the peg because it has "served us well," al-Jasser said at an Islamic Financial Services Board conference held in Singapore. The dollar still remains the "dominant" global currency, he said.
Saudi, the United Arab Emirates, Bahrain, Qatar and Oman were under pressure to scrap or loosen links to the dollar after the currency tumbled in March last year, making imports into the Middle East and the U.S. more expensive. Oil prices have dropped 62 percent since they peaked at a record in July 2008 and inflation slowed, reducing the need for a change in policy.
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 a fixed exchange rate, in May 2007, and now manages its dinar within a basket, including the dollar, euro and British pound. Qatar's central bank Governor Abdullah Bin Saud Al-Thani said today at the same conference that he's "happy" with the country's dollar link.
The dollar is still Saudi's main choice in its foreign- exchange reserves, which have increased and so there's no need to issue debt, Governor al-Jasser said today. He said on March 25 that monetary stability was "essential" in the current environment and expressed confidence in the dollar peg.
The Dollar Index, used by ICE to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, gained 3.4 percent to 84.0058 this year as of 12:27 p.m. in Singapore, and has climbed 19 percent from a record low of 70.698 reached on March 17, 2008.
Gulf Single Currency
A decision for a single currency shared among the Gulf Arab states hasn't been taken yet, al-Jasser said today.
Qatar's Finance Minister Yousef Hussein Kamal said on May 5 that he "hopes" that the six-country Gulf Cooperation Council will adopt a common currency next year. The GCC said in March that it will have to extend a 2010 deadline for introducing the currency after falling behind schedule.
Qatar's central bank Governor al-Thani said today he still thinks meeting the 2010 deadline is possible.
"We will still continue with 2010 and we'll be working hard on the schedule to achieve our goals and objectives," he said.
Heads of state from the GCC met in Riyadh this week to discuss the location of the future Gulf central bank. Saudi Arabia, the United Arab Emirates, Bahrain and Qatar are vying to host the bank.
