Tuesday, Sep 13, 2011

(This story was originally published Monday)

By Leila Hatoum

Of ZAWYA DOW JONES

DUBAI (Zawya Dow Jones)--Oman continues to hold the bulk of its foreign exchange reserves in U.S. dollars and hasn't changed its policy of pegging its currency to the greenback, despite the recent downgrade of U.S. debt by ratings agency Standard & Poor's Corp., according to the country's central bank governor Hamood bin Sangoor Al Zadjali.

Though the central bank is evaluating alternatives to U.S. assets, like many other central banks, the Omani central bank sees limited options in diversifying its reserve assets away from the U.S. dollar, Al Zadjali said in an emailed reply to questions from Zawya Dow Jones.

"As of now, there is no change in our policy [of pegging the Omani currency to the U.S. dollar]," Al Zadjali said. "Any drastic decision on the peg requires an in-depth study," he added.

Oman, like Saudi Arabia and most other members of the oil-rich Gulf Cooperation Council, pegs its currency to the U.S. dollar. As of June 2011, the Omani central bank held total assets of $12.4 billion, according to the most recent data available.

"In our opinion, the U.S. sovereign assets may continue to remain the dominant foreign asset portfolio of many central banks, at least for the time being, despite the sovereign rating downgrade of the U.S. by S&P," Al Zadjali said. "The options to diversify to other internationally usable currencies are limited as sovereign debt-GDP ratio for other G-7 countries are also high," he added.

In August, S&P stripped the U.S. of its triple-A credit rating, sparking some speculation that the Arab Gulf central banks might review their historic currency pegs to the U.S. dollar, or review the amount of their reserves they hold in U.S. assets. Since then, however, the United Arab Emirates and other GCC central banks have stressed they have no intention of abandoning their currency pegs.

Al Zadjali said that "as of now" the bulk of the Omani central bank's foreign investments are in U.S. assets, adding that there was no panic selling of U.S. Treasurys in the wake of the S&P downgrade. But he said that Oman is "observing the developments carefully and evaluating the alternative options, like many other central banks."

-By Leila Hatoum, Dow Jones Newswires, +971 4 446 1686;

leila.hatoum@dowjones.com

Copyright (c) 2011 Dow Jones & Company, Inc.

(END) Dow Jones Newswires

13-09-11 0335GMT