Business | Economy
Gulf central banks in a fix over dollar
The huge foreign reserves held in dollars by Gulf central banks have made them less flexible in their exchange rate policies, as any attempt to revalue domestic currencies would result in huge exchange rate losses on those reserves, said Stephen Jen, chief currency economist with Morgan Stanley.
- By Babu Das Augustine, Banking Editor
- Published: 00:53 March 6, 2008
Dubai: The huge foreign reserves held in dollars by Gulf central banks have made them less flexible in their exchange rate policies, as any attempt to revalue domestic currencies would result in huge exchange rate losses on those reserves, said Stephen Jen, chief currency economist with Morgan Stanley.
Speaking to Gulf News on the sidelines of the Hedge Funds World Middle East, Jen said Gulf central banks, like their Asian counterparts, have accumulated dollar reserves and held on to this falling asset class while the sovereign wealth funds from the region have been more responsive to the market realities in diversifying their portfolios.
"Now it has reached a stage that they [central banks] are facing the prospect of huge losses in the event of revaluation of their currencies or diversifying their existing holdings. That is one of the reasons why there is less incentive to change the exchange rate policies," he said.
The accelerating pace of the buildup of foreign reserves in Asia, combined with that of the Gulf countries, has sent total global official foreign reserves to a record high of $6.4 trillion as of at the end of 2007.
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