UAE holds dollar peg

Reuters, Monday 6 Dec 2010

UAE central bank governor defends its position of a dollar-pegged currency despite a low "greenback"

Pegging the United Arab Emirates' currency to the U.S. dollar is still the best choice for the Gulf oil producing country, its central bank governor Sultan Nasser al-Suweidi said on Monday.

"Sixty to 65 percent of the UAE trade is denominated in U.S. dollars so it is important to keep our peg to the dollar," he told a news conference ahead of a summit of Gulf Arab rulers in the UAE capital of Abu Dhabi.

"We have lots of investments in the U.S. and the U.S has deep markets for investing, so the dollar for us is the most important currency."

Periods of dollar weakness combined with higher inflation in the Gulf tend to revive questions about the viability of currency pegs to the U.S. dollar in the world's top oil exporting region. Kuwait has abandoned this policy two years ago, substituting the dollar to a basket of currencies.

The dollar on Monday recouped some ground lost from a renewed focus on U.S. monetary policy easing, pulling up off two-week lows against the euro.

Inflation in the Gulf is on the rise again this year as oil-based economies recover from last year's downturn and regional debt woes, but it is well below record, double-digit highs seen in most countries in 2008.

Suweidi also said the UAE's position about withdrawing from a planned Gulf monetary union was unchanged, indicating the world's third-largest crude exporter may come back only after the single currency is launched.

"Nothing new under the sun. The Emirates is still on its position, we are giving our brothers the chance to speed up the process ... and (then) we see their experience," he said.

He declined to explain the reasons why the UAE is holding back.

The second-largest Arab economy withdrew from the project last year in protest at a decision to put the joint monetary council in rival Saudi Arabia. UAE policymakers have been saying that rejoining was not on the table unless it is profitable.

Only Saudi Arabia, Kuwait, Qatar and Bahrain in the six-nation Gulf Cooperation Council remained committed to forming the long-delayed monetary union.

But the project saw little progress this year with the euro zone debt crisis limiting its appeal.


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