Business | Economy
UAE to stick with currency peg in view of rising dollar
Gulf oil producing countries are unlikely to complete monetary union by a 2010 target, but the dollar's rebound is giving them more reason to stick with their currency pegs, the UAE central bank governor said yesterday.
- Reuters
- Published: 23:44 August 28, 2008
- Image Credit: Ravindranath/Gulf News
- Al Suwaidi believes monetary union will be implemented in stages, the last of which will be the most difficult.
Dubai: Gulf oil producing countries are unlikely to complete monetary union by a 2010 target, but the dollar's rebound is giving them more reason to stick with their currency pegs, the UAE central bank governor said yesterday.
Sultan Al Suwaidi acknowledged there were challenges to overcome before the long-standing plan for a single regional currency could be concluded.
"Monetary union will be implemented in stages... the last of which will be the most difficult," Al Suwaidi said at a business conference in Dubai.
"If we achieve the first two [of three] stages to monetary union by 2010, then that will be enough," he said.
The third stage would require implementing similar laws in all the Gulf Cooperation Council countries, he said.
Feasible schedule
In July, Al Suwaidi's Saudi counterpart Hamad Al Sayyari said the bloc will decide on a "feasible" schedule for rolling out a single currency after reviewing the 2010 target.
Bahrain's Rasheed Al Maraj also said then the five nations were unlikely to set a new deadline this year for the union, but he added that meeting the deadline would be difficult.
Kuwait has severed its dollar peg, which was intended to remain intact until monetary union. Oman said in 2006 it will not join.
Recent gains in the greenback were further justifying the UAE's policy to keep the link to the US currency, Al Suwaidi said.
"There is more reason to stay with the peg... because the US dollar is getting stronger," he said.
Dollar pegs have forced Gulf central banks to track seven US interest rate cuts in the past year, driving real interest rates into negative territory and stoking record inflation.
Al Suwaidi also said oil prices could fall to a range of $60 to $80 per barrel, from over $119 now.
But the governor did not offer a time frame for the possible price fall and cautioned that predicting oil prices was "difficult and dangerous".
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