GCC will have to change its currency peg - Emirates24|7

GCC will have to change its currency peg

It is a ripe old debate – and one that seems to be intensifying as the weeks go by: the dollar-peg employed across the Gulf has become a very uncomfortable yoke as the value of the US dollar continues to drop.

Goldman Sachs reckons the peg is doomed – but not about to die.

Here's Ahmet Akarli's thinking: "We continue to believe that Saudi Arabia, together with the other GCC economies, will eventually adopt a more flexible FX and monetary policy regime.

"A number of fundamental reasons support our view that the GCC will move towards greater flexibility. The GCC economies have integrated rapidly with the Bric, the N-11 and the Eurozone economies, and it makes a lot more economic sense to switch to a composite currency basket that would be more reflective of the [shifting] trade patterns and help to smooth out the disinflationary/inflationary impact of the cycles of the anchor currency, the dollar, on the domestic economy.

"This entails relatively little economic cost as the transition to a basket should technically be fairly straightforward – but the political/psychological impediments could still be high. Hence, we expect the GCC economies ultimately to move in this direction."
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