Gulf Arab states are pushing ahead with a landmark monetary union by 2010 but have no plans to end a long-standing peg between their currencies and the US dollar, the United Arab Emirates Central Bank governor said yesterday.
Sultan bin Nasser Al Suweidi denied there was any political pressure on the Gulf Cooperation Council (GCC) countries to keep that peg and said the 27-year-old group is banking on a recovery of the US currency in the near future.
Speaking to reporters at a meeting in Abu Dhabi to tackle money-laundering, Suweidi said the link between the dirham and the US dollar contributed only around 35 per cent to inflation in the UAE, which was largely due to high oil prices and a surge in local demand.
“There is no intention for the time being to unpeg our currencies from the US dollar because if you look at currencies worldwide, you will find that all of them keep fluctuating, rising some times and declining at others.
So the decline in the dollar is a temporary phenomenon and we should not build long-term decisions on short-term issues. In other words, we can not look for long-term solutions for short-term problems,” he said.
Suweidi, who has been involved in extensive GCC discussions on the dollar and inflation over the past few years, recalled that the value of the US currency had steadily increased between 1992 and 2002. He said the dollar then stabilised for two years before it began to decline in 2004.
“The dollar was steadily rising and with it, the GCC currencies were rising. It was a period of nearly 10 years, while it has weakened for nearly three and a half years now. Our hope is that the dollar will rise again,” he said.
Suweidi dismissed reports that GCC countries, which control nearly 45 per cent of the world’s oil wealth, have come under political pressure from the United States to keep their currencies attached to the dollar.
He said: “These are baseless reports. There is no political pressure. Simply, we have to study any issue carefully and collectively on economic and monetary basis before taking any decision.”
But he stressed the UAE is taking measures to stem liquidity by issuing certificates of deposits and maintaining a high level of reserve requirements for banks and foreign units.
“We have CDs and a high reserve requirement, which is 14 per cent for call deposits, current and savings accounts. We also impose one per cent for fixed or time deposits,” he said.
Al Suweidi: Gulf's dollar peg to stay