Time to come home Elroy,
Downward Dollar Delivers Blow to Outsourcing
Gotta wait until they depeg and the UAE dirham rises 30% or so versus the dollar, so my dirham savings can get a nice pop....
US 'urges UAE to retain peg'
Bloomberg
Published: March 19, 2008, 00:10
gulfnews.com
Dubai: The UAE, conceding to US pressure and a desire to act in concert with Gulf allies, will keep the dirham pegged to the dollar, a UAE Central Bank official said.
US embassy officials last week told UAE Central Bank Governor Sultan Bin Nasser Al Suwaidi of their concern about reports that the country may drop the peg, the official said yesterday, speaking on condition of anonymity.
Political leaders have stopped the bank from developing any plans to move toward another currency regime, the official said. US Embassy spokesman Atalah Hoshan in Abu Dhabi wasn't immediately available for comment.
Abandoning the link would risk further weakening the dollar as the US economy falters and the Federal Reserve battles a crisis of confidence in fin-ancial markets.
The Gulf states, including Saudi Arabia and the UAE, depend on the US for political and military backing and are unlikely to abandon their closest ally at a time of financial turmoil, said Anoushka Marashlian, senior Middle East analyst at Global Insight in London.
"The US has always been the guarantor of UAE military security," Marashlian said. "The UAE wouldn't do anything to compromise that relationship."
Gulf central banks are under pressure to drop the peg or revalue their currencies after the dollar lost 17 per cent of its value since the beginning of last year, and the US began cutting interest rates. Still, Hamad Saud Al Sayari, governor of the Saudi Arabian Monetary Authority, said on March 12 the dollar is a "good buy" and is undervalued.
Impact
The Fed's weekend cut in the discount rate accompanied a pledge to provide as much as $30 billion to JPMorgan Chase & Co. to help finance the purchase of Bear Stearns Cos. after a run on Wall Street's fifth-largest securities firm.
The weaker dollar makes imports more expensive while lower rates increase the money supply and stoke inflation. The central bank official gave no indication as to how long the bank will hold off moving toward a new currency regime.
The UAE Central Bank defended its independence, denying any political pressure on its monetary decisions. "This cannot be true, as we have not even heard anything of the sort," a bank official told Gulf News.
- With inputs from Ahmed A. Elewa/Senior Reporter
Policy change: HSBC sees 40% chance
HSBC Holdings Plc said there is a 40 per cent chance Gulf Arab states such as the UAE and Qatar will make changes this year to their dollar-peg foreign exchange policies or risk higher inflation.
"The 40 per cent probability of change taking place this year reflects our view that policymakers could yet have their hands forced in what looks to us to be a brewing perfect storm," Middle East economist Simon Williams wrote in a report.
The storm is a combination of "dollar weakness, falling US rates, high oil earnings and rising inflation," Williams said.
- Reuters
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