Peg will stay, but GCC leaves doors open

Doha: Gulf countries are committed to the dollar peg but each state can revalue its currency according to its own interests, the Qatari Prime Minister said on Tuesday at the end of the 28th Gulf Summit.

Shaikh Hamad Bin Jasem Al Thani also said the six-nation Gulf Cooperation Council (GCC) is concerned about the weakness of the dollar, but no decision was taken at the summit on moving from the dollar peg to a basket of currencies. "We cannot disturb the market, we will stick to the dollar," Shaikh Hamad said on Tuesday.

Asked whether the Council would allow states to revalue their currencies independently, he said: "Countries willing to revalue their currencies can do so, according to their own interests."

Gulf countries are trying to cope with rising inflation and dollar weakness, but sources at the summit said they could not agree on the dollar peg.

GCC secretary general Abdul Rahman Al Attiyah said the 2010 timeframe for the currency union was still in place and the GCC had requested ministers of finance to submit proposals to the next summit in for its implementation.

"Leaders have stressed the importance of the programme leading to the monetary union by 2010. Ministers of finance and governors of central banks have been asked to come up with recommendation to be presented at the next summit in 2008," he said.

Have your say

Do you think this is a good or bad decision, keeping in mind the increased revenue from higher energy prices for the region? Will this prove to be a better strategic decision? Or is it going to result in workforce leaving from increased cost of living?

The decision seems to be a very balanced one and not prompted by haste. While leaving the doors open to revalue individual currencies, GCC countries have opened a debate which will see a resolution by 2010. The ultimate goal is to peg against a basket of currencies. It is a positive step.
Javed
Doha,Qatar
Posted: December 05, 2007, 15:37

It is unfortunate that despite being a robust economy, the UAE is suffering because of the dollar peg. The need of the hour is to end it.
H.R.A.
Dubai,UAE
Posted: December 05, 2007, 15:33

The authorities are not thinking about the expatriates who are working here to earn better than they would have in their home country. It means a loss of 10-20 per cent in salaries.
Syed
Sharjah,UAE
Posted: December 05, 2007, 14:12

The UAE should revalue the currency and continue with the dollar peg. It has enjoyed several benefits over the years for being pegged to the US dollar.
Ajay
Abu Dhabi,UAE
Posted: December 05, 2007, 13:41

The Gulf states, undoubtedly, want to do away with the dollar peg. Had they done so at the Doha meeting, it would have sent the dollar tumbling down further. This would have wiped out even more value from their vast dollar reserves and dollar-dominated investments. The dollar peg should end only after an optimal amount of the Gulf reserves have been converted to other major currencies, and only when the sentiment towards the US economy is not one of fear and pessimism, as is the case now. It should end only when the environment is more exuberant and such an announcement will make a lesser impact.
Kaloian
Sofia,Bulgaria
Posted: December 05, 2007, 13:20

Most businesses in the UAE are aimed at the American markets, directly or indirectly. The weakening value of the dollar will increase the cost of production. This is likely to force the businesses to move out of the UAE to low-cost destinations such as China. So a lot of thinking needs to be done before making such a decision.
C.S.G.K.
Sharjah,UAE
Posted: December 05, 2007, 10:43

The GCC countries such as the UAE and Qatar will be greatly affected by the weakening dollar. The government will have to think of a solution fast, or else the expatriates might start leaving the country, triggering a manpower crisis.
Mark
Manila,Philippines
Posted: December 05, 2007, 09:28

This is a bad decision. If the dollar continues to weaken, the inflation in the UAE will soon go out of control just as rents have.
Bipin
Dubai,UAE
Posted: December 05, 2007, 09:14

I think the decision to continue with the dollar peg is not a right one. Shifting to a basket of currencies, which will also include a significant percentage of USD, is a better option. Such a system will be more flexible and will reflect the fair value of GCC currencies.
Farid
Abu Dhabi,UAE
Posted: December 05, 2007, 06:38

The decision is a bad one and only goes to show that the Gulf states are not confident about their own currencies. They should focus on curbing inflation.
Mohammad
London,UK
Posted: December 05, 2007, 04:02