Syria to drop dollar peg in July

Central bank says currency will shift to the IMF's Special Drawing Right.
Syria to drop dollar peg in July
By Reuters
Tue 05 Jun 2007 01:12 AM

Syria will drop its peg to the U.S. dollar in July and instead link its currency to the International Monetary Fund's Special Drawing Right (SDR), the central bank governor said on Monday.

"We will do it now in July," Governor of the central bank of Syria Adeeb Mayaleh told reporters in Abu Dhabi. Mayaleh said in October that the change would take place in the first half of 2007, but "we needed some time so we slightly delayed it".

Effective Jan. 1, 2006 the IMF set weightings for the SDR, its unit of account, at 44 % U.S. dollars, 34 % euros and 11 % each of the yen and the British pound.

"(The change) gives more stability to the Syrian pound and it mitigates the risks of fluctuations of currencies like the euro and dollar," Mayaleh said.

The euro has risen 2.19 % this year against the dollar, which hit a record low against the European currency in April.

Syria currently has two exchange rates, one for the market and one for trade.

Syria would be the second Middle Eastern central bank to drop its dollar peg this year. Kuwait, the Middle East's third-largest oil producer, ended its dollar peg last month to combat inflation caused by rising costs of imports denominated in currencies such as the euro.

Kuwait now pegs its dinar to a basket of currencies it uses for its imports and investments.

Asked about the weighting of the U.S. dollar in Syrian currency reserves, Mayaleh said: "There will be no change for the moment and we will keep it at 50-50 (dollar/euro), but we might change it later on depending on any new development."

Syria has been reducing its dollar holdings since 2005, when reserves were entirely in dollars, Mayaleh has said. Syria was already pricing oil -- a main revenue source -- partly in euros, he has said.

A number of central banks in the Middle East have diversified their reserves away from the dollar and into the euro.

The United Arab Emirates aims to hold 10 % of its reserves in euros by the end of the third quarter of 2007, up from 3 %, central bank governor Nasser al-Suweidi said in January.

Egypt's central bank governor Farouk el-Okdah said in March he had cut the country's U.S. dollar holdings to around 57 % of reserves from more than 90 %.

For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.

Subscribe to our Newsletter

Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.