21 November 2007
Dubai: The dollar slipped to a record low against the euro on Tuesday as speculation mounted in international financial circles that the Gulf states are ready to either revalue their currencies or do away with their peg to the dollar and more bad news from the banking sector added to the downward pressure on the greenback.
The euro leapt as high as $1.4814 yesterday, the highest level since the euro's creation in 1999. The euro later pulled back to $1.4803.
Currency markets and financial experts have been speculating that Gulf countries will either revalue or depeg their currencies to quell the mounting exchange rate losses and domestic inflation. While GCC governments are looking at Saudi Arabia to announce a decision, experts said if GCC governments fail to arrive at a consensus, it is likely that the UAE and Qatar would take unilateral actions.
"Saudi Arabia was still unlikely to change a riyal exchange rate set in 1986, raising the risk that the UAE and Qatar would switch to currency baskets," Abdul Aziz Al Uwaisheg, head of studies and economic integration at the General Secretariat of the Gulf Cooperation Council (GCC) told a Saudi newspaper on Tuesday.
Financial experts in the region feel that the GCC should arrive at a consensus on the exchange rate policy at the earliest, failing which some countries are likely to take independent decisions. "Ideally this [currency peg] should be discussed on a GCC-wide level, but if you can't get that, well, you might end up with certain countries taking a stand and others not," said Dr Omar Bin Sulaiman, Governor of the Dubai International Fin-ancial Centre.
According Reuters data, the UAE dirham hit a five-year high yesterday on growing expectations that the dollar's slide would force some Gulf States to reform exchange rate policy. The dirham touched 3.6678 per dollar, its strongest in the past five years. The Saudi riyal hit a 21-year high on Monday and the Qatari riyal a five-year high yesterday.
Major revision
While the Gulf governments and central bank governors have yet to give any clear indication on the policy shift, economists said that if the Gulf states are opting for a revaluation, they should make a substantial upward revision.
If the Gulf states are opting to revalue their currencies, it should be now and the revaluation should be at least 20 per cent, according to Gerard Lyons, chief economist and Marios Maratheftis, regional head of research at Standard Chartered Bank.
"The Gulf countries should carry out a one-time big revaluation by 10 to 15 per cent of their currencies to the dollar," Steve Forbes, US entrepreneur, told the Leaders in Dubai conference on Sunday.
These comments have come at a time when Gulf central banks and governments have started active discussions on the possibility of revaluing their currencies.
By Babu Das Augustine
Gulf News 2007. All rights reserved.
