GCC urged to revise currency exchange rates

Gulf oil producers need to revise the fixed exchange rate of their currencies against the US dollar because of persistent fluctuations in the US

currency and post-crisis global fiscal changes, according to two Dubai officials.

While the fixed rate of the currencies in the six-nation Gulf Cooperation Council (GCC) had ensured financial stability at the beginning, this stability

bas been shaken by dollar volatility after the 1990s and the 2008 global economic distress, said Hani Al Hamli, Secretary General of the Dubai Economic

Council (DEC).

He said the revision of exchange rates in the region could be done within the monetary union, which was launched by four GCC members in early 2010.

“The US dollar has witnessed dramatic changes since early 1990s while the economies of the GCC countries have passed through serious challenges because

of the global crisis,” he told the semi official Alittihad daily.

“These developments should prompt the GCC countries to revise the present currency exchange rates given their heavy reliance on oil exports, which are

priced in US dollar…this revision should be accelerated by the fact that the spectre of a currency war could have serious consequences to the world

economy, destabilise the financial order and bring back protectionism.”

Another official said the UAE, which is not signatory to the GCC monetary union, is not in a “pressing need” for unpegging its dirham from the US

dollar, to which most other GCC currencies are attached.

“But I think that with the continued weakening in the US dollar, the UAE should consider other options and strategies in case of a dollar crisis…..in

the short term, I believe the UAE should not unpeg the dirham from the US currency,” said Abdul Razzak Al Faris, chief economist at DEC.

Faris said it was too early to talk about any impact on the UAE currency and economy by the “so-called” global currency war, adding that other major

currencies such as the euro are also facing challenges.

The GCC groups the UAE, Saudi Arabia, Kuwait, Qatar, Bahrain and Oman in an economic, political and defence alliance created in 1981. The UAE and Oman

are members of the GCC customs union and common market but have not joined the monetary union for different reasons.

The GCC currencies have been pegged to the US dollar for more than 30 years. Kuwait ended the peg and linked its dinar to a basket of currencies three

years ago within monetary measures to tackle soaring inflation, caused mainly by a surge in its import bill due to the weakening in the dollar.