US Treasury Secretary Henry Paulson yesterday defended the dollar's status as the world's reserve currency.
"The US dollar has been the world's reserve currency since World War Two and there is a good reason for that. The United States has the largest, most open economy in the world, and our capital markets are the deepest and most liquid," Paulson told a business group in the UAE.
Paulson's comments mark a slight strengthening of his recent language on the dollar and could resonate with Gulf oil producing states that are struggling with soaring inflation and may be re-evaluating their dollar currency pegs. The US Treasury Secretary is on the final day of a four-day tour to Saudi Arabia, Qatar and the UAE to discuss currency and economic issues with regional leaders and reassure them that the United States
remains receptive to their investments. In his remarks, he pledged to deal with problems in the US economy that have hurt the dollar's value in recent months.
"I am committed to promoting policies that enhance the underlying competitiveness of the US economy and ensure that the dollar remains the world's reserve currency," he told the US-UAE Business Council.
On Sunday, Paulson said officials in Saudi Arabia and Qatar had told him that they believe dropping their dollar pegs would not solve high inflation, which also is due to high food and cement prices.
Paulson's goodwill tour, however, may have little influence over currency policy among the five Gulf oil producers that peg their currencies to the dollar.
Kuwait dropped its dollar peg last year.
"Those guys will take their own decisions," said a foreign exchange trader in Dubai who declined to be named. "They rule their own world and go by their own rules... and to be honest with you, I don't think this is going to influence or speed up any decisions they make."
Paulson said it will take "months'' before financial-market turmoil ends and reiterated his commitment to a "strong'' dollar.
"We're talking about months and there will continue to be bumps in the road,'' Paulson said.
Paulson was repeatedly asked about what the US is doing about the weakness in the dollar, which has fallen 14 per cent against the euro in the past year.
"Markets respond to economic fundamentals,'' he said. "Every economy is going to have its ups and downs, and the US is going through a tough period.
"I believe the long-term economic fundamentals will be reflected in our currency.''
Paulson's trip comes as US financial institutions, reeling from the sub-prime mortgage crisis, have been forced to raise billions of dollars in fresh capital, some from the Middle East. (Agencies)
New legislation will hurt us, warns Qatari minister
The United States could be hurt if it approves legislation by its House of Representatives to sue Opec over its oil output policies, Qatar's Deputy Premier and Energy Minister was quoted as saying yesterday.
Abdullah bin Hamad Al Attiyah said a legislation approved by the US House of Representatives late last month to sue the 13-nation Opec for limiting crude supplies was a "political process that has nothing to do with the real situation".
"Opec members are sovereign countries and I believe that legislation is a political issue that could be part of the current US election campaign," Attiyah was quoted as saying by the Qatari Arabic language daily Al Raya.
"This issue could have adverse effects if the oil exporters to the US feel this law will be enforced… but there have been news that the US Administration intends to use its veto powers against that legislation."
The House of Representatives approved a legislation on May 20 allowing the Justice Department to sue Opec members for limiting oil supplies and working together to set crude prices. But the White House threatened to veto the bill, which would subject Opec oil producers to the same antitrust laws that US companies must follow.
"Opec is against speculations that are taking place in the market nor does it have anything to do with setting oil prices, which are determined by market forces," Attiyah told the paper in Doha.
"Opec no longer interferes in the market in line with calls by consumer countries since the 1990s, when crude prices collapsed to $10. The problem is they want to sue Opec when oil prices tumble on the grounds it is dumping crude into the market… they want to do the same when it soar." (Agencies)