De-pegging from the US dollar by Shawkat Hammoudeh, Professor of Economics & Int'l Business, Drexel University - 01-Mar-08
While I agree with the former US Federal Reserve chairman Alan Greenspan that the GCC countries are better-off to de-peg from the dollar, I disagree with his suggestion that the de-pegging should be done soon and the unilateral peg should be replaced with a float. Our research on the GCC’s economies viewed as a hypothesized single bloc demonstrates the shocks to the GCC economy come from the dollar, euro and yen zones in this order of significance, suggesting a basket of currencies reflecting this significance order be adopted. The intermediate transition should first be to the basket and eventually to a float. My co-authors and I believe that the transition should come after the proposed monetary union takes hold even if the dollar strengthened at that time and should not be done soon as suggested. When the transition comes, it should come as a total surprise to the financial markets and should also be in a sizable proportion that reflects the average purchasing power parity of the GCC countries with respect to the three major currencies. The details will be left to policy makers. [Report Abuse | Email to a Friend | Reply to this Comment]