Bahrain's central bank said on Monday its 28-year currency peg to the US dollar has helped the Gulf Arab state develop a financial services sector that has surpassed oil as the largest contributor to economic growth.
The fixed exchange rate policy has led to a "high degree of economic and price stability ... which has underpinned the growth and development of the country's flourishing financial services industry," the central bank said in a report.
The financial services industry contributed 25.5 percent to total real gross domestic product (GDP) in 2006 at 4.1 billion Bahrain dinars, the central bank said in a study on the banking sector's growth in 2007.
"The kingdom's financial services industry has surpassed the oil sector as the largest contributor to the national GDP," the central bank said.
Total bank assets were $233.2 billion at the end of October, up 33 per cent from a year earlier, the central bank said.
Assets of Islamic lenders jumped 85 percent over the same period to $18.8 billion, it added.
Dollar pegs force Bahrain and four of its Gulf neighbours, including Saudi Arabia, to shadow US interest rate moves at a time when inflation is hitting decade-highs across the Gulf.
Most Gulf Arab oil producers decided to keep their currencies pegged to the weak US dollar at a summit in December.
Gulf countries should not rush to decide on revaluing their currencies because volatility in the US currency is normal, Bahrain's central bank governor was quoted in Middle East Economic Digest as saying last month.
The US Federal Reserve has cut rates by 100 basis points since September 18 to contain the fallout from a mortgage crisis, and Gulf central banks are following to prevent market bets that their currencies would appreciate. (Reuters)
Bahrain says dollar peg has helped boost financial services