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Dollar depegging 'will spell disaster'

Deutsche Bank's Middle East CEO warns move will backfire as greenback's fall will end soon.

  • Bloomberg
  • Published: 00:05 May 3, 2008
  • Gulf News

Beirut: Gulf states should not end their pegs to the dollar because the US currency's fall is nearing an end, Henry Azzam, Deutsche Bank's CEO for the Middle East and North Africa, said.

"The worst is behind us in terms of interest rate declines internationally and on local currencies," Azzam said at the Arab Economic Forum.

"Let's not do anything today structural to cope with a cyclical phenomenon that is coming to its close and could affect us for many years."

Gulf states are considering dropping their pegs to the dollar, which has fallen 13 per cent against the euro in the last 12 months, after the US currency's decline stoked inflation across the region, Kuwaiti Finance Minister Mustafa Al Shimali has said.

"All that we need now is a sign that the dollar has bottomed and I think we are getting that in the market," Azzam said. "Once the speculators realise that the dollar has bottomed we will see a reversal of the inflow of money coming into the commodity indexes. We could see a drop in prices as fast as we have seen a rise in prices."

Countries like Lebanon, Jordan, and Egypt that are paying high oil prices also should not revalue their currencies against the dollar, Azzam said.

"Revaluing your currency would be a disaster because you want to give a push to exports to cope with imports," he said. "Everyone will have to tighten their belt."

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