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Thu 16 Aug 2007 01:48 PM

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Syria rubberstamps move away from dollar

Prime Minister Naji Al-Otari signs decree to end peg to dollar, currency basket will be adopted within a month.

Syrian Prime Minister Naji Al-Otari on Wednesday signed a decree to end the Syrian pound’s peg to the dollar and link it to a basket of currencies to lessen the fallout of a weakening US currency, a Syrian central bank official said.

“The Prime Minister signed the official decree today, and the new basket will be completely adopted within a month,” Adib Mayaleh, the country's Central Bank Governor told Zawya Dow Jones.

Mayaleh, who announced the move in June, said its currency would be linked to the International Monetary Fund’s special drawing rights (SDR), which represent a basket of currencies including the dollar, euro, yen and UK pound.

The IMF's weighting for the SDR currently stands at 44% dollars, 34% euros and 11% yen and British pound.

Syria has been reducing its holdings in the greenback since 2005, when reserves were entirely in dollars.

It became the second Middle Eastern country to drop its dollar peg this year. Kuwait, the region's third-largest oil producer, ended its dollar peg in May to combat inflation caused by rising costs of imports denominated in currencies such as the euro.

Kuwait is now pegging its dinar to a basket of currencies it uses for its imports and investments, but has not revealed the make up of its basket.

Kuwait's move has put pressure on other Gulf states to follow suit, but has yet none of the other five nations that make up the GCC have opted to depeg their currencies.

However, a number of central banks in the Middle East have diversified their reserves from the dollar and towards the euro.

The UAE plans to hold 10% of its reserves in euros by the end of the third quarter of this year, 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 reduced the country's dollar holdings to around 57% of reserves, from more than 90%.

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