Kuwait drops dollar peg

[BATMAN]

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UAE in spotlight after Kuwait drops dollar peg

http://www.thenews.com.pk/daily_detail.asp?id=56973

DUBAI: The United Arab Emirates central bank kept markets guessing on Monday on whether it might change its foreign exchange policy, after Kuwait dropped its dollar peg and adopted an exchange rate based on a basket of currencies.

A UAE revaluation, seen as more likely after Kuwait’s switch on Sunday, would make regional monetary union even more difficult by a 2010 deadline and send another bearish signal from Gulf oil exporters about the outlook for the weak dollar.

Kuwait will now need to buy fewer US assets when it accumulates reserves to defend the exchange rate, although the impact on dollar would be negligible, Scandinavian bank Nordea said in a research note.

“If other countries in the region will follow, however, we see a risk of a modest dollar weakening,� it said. After Kuwait, the UAE was the most likely candidate to loosen a dollar peg which the six oil producers had agreed would stay in place until monetary union, according to analysts polled by Reuters in March.

“We shall be closely watching the UAE, which should be the next one on the list,� said Elisabeth Gruie, Emerging Markets Strategist at BNP Paribas in London. However, the office of UAE central bank governor Sultan Nasser al-Suweidi said he would not comment.

Kuwait cited its inflation rate, which touched 3.7 per cent in December and 5.5 per cent at the end of March, as the main reason for abandoning its dollar peg. With the dollar hitting a record low against the euro in April, Kuwait’s central bank was forced to act in the “national interest� and break ranks with fellow Gulf Arabs states over the currency pegs, the central bank said on Sunday.

The UAE, where inflation hit 10 per cent at the end of last year, and Qatar, with record inflation of 11.83 per cent in 2006, had more reason to cushion their economies from the rising cost of imports, Citigroup analyst David Lubin said in a note.

Qatar’s central bank governor ruled any change of exchange rate policy on Monday. The central banks of Saudi Arabia, the largest Arab economy, Oman and Bahrain did the same on Sunday.

“A build up of speculative positions betting on further revaluations in the region seems very likely now,� Lubin said in the note. The UAE dirham hit a one-week high of 3.6710 per dollar compared with its official peg of 3.67275. The Saudi riyal touched a six-week high at 3.7498 per dollar, just off its official 3.75 per dollar peg.

Like Kuwait, the UAE cut interest rates in April to deter speculators betting that the central bank would allow the currency to appreciate as the dollar slid. Suweidi first raised the prospect of a currency revaluation in an interview with Reuters in January, although he has repeatedly said he would not act alone.

“The UAE has said it won’t move unilaterally, but now it wouldn’t be acting unilaterally,� said Steve Brice, chief Middle East economist at Standard Chartered Bank in Dubai. Kuwait also cited the diminishing prospect of meeting the 2010 deadline for a single currency as one factor behind its decision to drop the dollar peg, adopted in 2003 to create a platform regional economic integration.

[Cheetah786]

Qatar’s central bank governor ruled any change of exchange rate policy on Monday. The central banks of Saudi Arabia, the largest Arab economy, Oman and Bahrain did the same on Sunday

What a surprise.

[BATMAN]

Pakistan should also diversify it's foreign currency reserves.
I don't see a very promising ecnomic future for USA.
I suggest, Pakistan should change it's own currency to Chinees Yuan.
Common middle eastern or Islamic currency seems un-likely or a mamoth challenge.

[Bull]

I suggest, Pakistan should change it's own currency to Chinees Yuan.

Loser....just willing to give up anything.

[BATMAN]

^ Why are you trying to sabotage the discussion,

[Bull]

^ Why are you trying to sabotage the discussion,

That was a rather stupid and spineless suggestion. When you have an economy growing at more than 6 %, you should be proud about it. Not like a kid trying to go and get the protection of the big boy.

[Awesome]

Ummm I think he was just suggesting tying the knot with an economy more promising than America's.

There's a huge debate in UAE, about this... I think they won't do it right away and would move forward with the regional union. But it's bound to happen sooner or later... And that would be worse for the dollar as that would happen in the form a of a collaborated move.

[Samudra]

Ummm I think he was just suggesting tying the knot with an economy more promising than America's.

Chinese economy is more promising than America's ? How so?

[Awesome]

Chinese economy is more promising than America's ? How so?

He was suggesting...

[BATMAN]

Chinese economy is more promising than America's ? How so?

Wakeup, Chinese economy is making history, have you ever heard of double digit growth rate?
Read todays news paper.

[Samudra]

Wakeup, Chinese economy is making history, have you ever heard of double digit growth rate?
Read todays news paper.

Cool.
But does that make the Chinese currency stronger ?

[Bull]

Cool.
But does that make the Chinese currency stronger ?

...cool.......

[Cheetah786]

Cool.
But does that make the Chinese currency stronger ?

I doubt very much Chinese will make there Yuan stronger any time soon.it will increase in value but doubt to the point where the Americans are asking for it.
Important think to see in future how India will control her rupee.as it isn't a communist state.

[BATMAN]

Cool.
But does that make the Chinese currency stronger ?

You make many laugh. Do you know the exchange rate of japanese Yen.
1Yuan = 16 Yen, does that make japanese 15 times more poorer than

China is all about exports and with stronger currency it has a lot to loose. All this is done in a very calculated way.
Looking at the growth rate of china its economy will double in less than 10 years and even India will be forced to have Yuan in its reserves.

I think it's too much of risk in today's world to keep reserves in form of USD, only.

Give me some sensible reason why it is a loss to have common currency with China.

[Bull]

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I doubt very much Chinese will make there Yuan stronger any time soon.it will increase in value but doubt to the point where the Americans are asking for it.
Important think to see in future how India will control her rupee.as it isn't a communist state.

Who said its only communist states that control its currency???