Persian Gulf countries should discuss whether to shift their currency peg to a basket of international currencies instead of the dollar, the economy minister of the United Arab Emirates was quoted as saying Thursday.

Persian Gulf officials have previously denied any risks to pegs in the region, which relies heavily on imports, as a result of the weak U.S. currency. Sultan Saeed al-Mansouri told the Arabic language Ash-Sharq al-Awsat newspaper that shifting pegs toward a currency basket would help Persian Gulf countries protect their currencies and investments.
Policymakers in the world’s top crude exporting region have long said that the dollar pegs they have serve their hydrocarbon-heavy economies well as long as inflation stays under control.
Inflation has started to pick up as key Persian Gulf economies recover, recently hitting 18-month highs in the UAE and Kuwait, but it remains far below 2008 record peaks. Kuwait is the only country in the region tracking a basket of currencies, having broken ranks in 2007 with other Persian Gulf states whose currencies are pegged to the dollar.
Mansouri said the U.S. economy was “a strong and growing economy despite that it passes through a specific time that will affect the value of the dollar in one way or another.”
Some economists have warned the Federal Reserve’s latest bid to revive the U.S. economy with a $600 billion liquidity injection could fuel inflation and put the credibility of the dollar at risk.
The U.S. economy continued its slow recovery in recent weeks, the Fed said Wednesday, with pockets of strength in manufacturing offset by “depressed” housing markets and employers still reluctant to hire in significant numbers.
The UAE economy is expected to grow by 3-3.5 percent in 2011, Mansouri said last week. He added that the UAE’s gross domestic product (GDP) should reach 1 trillion dirhams ($270 billion) in 2010. Nominal GDP had fallen to 914.3 billion dirhams in 2009 from 934.3 billion dirhams in 2008 after the global slowdown.
(Source: dailystar.com.lb)