Inflation, dollar peg to overshadow Gulf cbank summit

INFLATION CHALLENGE: Central bank governors are set to meet on Monday to try and pick up the pace of the Gulf monetary union amid soaring inflation and calls to depeg from the dollar. (Getty Images)

Gulf Arab central bankers meet on Monday for the second time in less than three months to pick up the pace of monetary union as they resist pressure to drop their dollar pegs amid soaring inflation.

The six-member GCC will try to flesh out technical issues in their extraordinary general meeting to come up with a final document on monetary union to be presented to the region's leaders by year-end.

"The nature of the meeting is very technical and detailed and the focus will be on establishing the institutional and legal framework for monetary union," said a GCC secretariat official who declined to be identified.

Since last year, the dollar has plunged against the euro, the US Federal Reserve has slashed interest rates six times, and inflation in Qatar and Saudi Arabia have hit record highs.

The need to maintain dollar pegs has forced Gulf countries to cut interest rates in tandem with the Federal Reserve even though their economies are booming, their main export, oil, is priced in dollars and inflation is spiralling.

At their regular meeting in April, the governors discussed removing obstacles to longstanding single currency plans in an effort to prevent unilateral revaluation as the pressure mounts.

Of the six countries, Oman has said it would not join the union at all and Kuwait dropped its dollar peg in 2007, throwing the plan into disarray.

"This is a continuation of our last meeting... we will follow up on the progress of the technical committees," Bahrain Central Bank Governor Rasheed Al-Maraj said last week when asked by newswire Reuters on the meeting's agenda. "We will not be discussing tackling inflation."

UAE Prime Minister Sheikh Mohammed bin Rashid Al-Maktoum and Central Bank Governor Sultan Nasser Al-Suweidi both reiterated this week the UAE had no plans to drop its dollar peg or revalue after meeting US Treasury Secretary Henry Paulson.

Paulson toured Gulf Arab countries, including regional power and key US ally Saudi Arabia, to defend the status of the dollar as the world's reserve currency.

An adviser to the ruler of Qatar, another Gulf Arab state that pegs its currency to the ailing dollar, said the country needed to act over the dollar peg without being more specific.

"The case for monetary reform is strong but I don't sense that Gulf leaders are persuaded by the arguments for change... There is also a strong preference for joint action over unilateral adjustment," said Simon Williams, regional economist at HSBC.

"I do sense renewed enthusiasm for the currency union but what the market will be looking for is evidence that renewed support for the project is translated into concrete decisions."

Progress on key policy issues such as the type of currency regime, how the central bank will be organised, what powers it might enjoy and what tools it might have at its disposal would be a significant step forward on the road to monetary union.

Ensuring the central bankers reach common ground on the technical aspects of monetary union is key to maintaining the fresh impetus of the last few months and reducing the chance of individual states moving ahead unilaterally.

"We recommend a revaluation of the UAE [dirham]," Gerard Lyons, chief economist at Standard Chartered said on Thursday. "If it doesn't happen the region could see a boom that will become a bust." (Reuters)

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the first step towards pricing oil in gold
Posted by Ivo Cerckel, Siquijor, Philippines on 8 June 2008 at 08:49 UAE time


Arab News is today quoting Charles Seville, an associate director of Fitch, the leading international rating agency, as quoted in Al-Eqtisadiah business daily, as saying:
“When the prices of oil go up, the value of the currency will also go up.”

The National says today that Friday’s record day for oil highlights a market shift, oil having skyrocketed not in response to the usual supply-versus-demand factors, but in response to investors and speculators pouring money into the commodity that they were pulling out of other investments, including stocks and bonds, and fleeing from the dollar.

As this poster said here on 5 May 2008 at 05:21 UAE time under
Experts to bring Euro perspective to Gulf
GCC Currency Forum 2008:

Once the world will be allowed to know that the past three decades of cheap Arabian oil have been made possible by the flow of cheap gold to the Saudi Arabia oil-central bank then most will start to understand what the gold euro really means. […] Oil and gas for euro simply because the euro is evolving into a gold euro, through the European Central Bank marking its gold reserves to market. End of quote.

Will the Gulf Arab Gulf Arab monetary union mark its oil reserves to market so that, as Charles Seville is saying, when the prices of oil go up, the value of the currency will also go up?

Will be this the first step towards pricing oil in gold?

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