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From The Times
November 21, 2007

Saudi Arabia ready to ditch the dollar to protect value of riyal

Peter Stiff

Saudi Arabia may be considering revaluing its riyal currency to calm concerns about the Gulf region’s link to the falling US dollar, according to a report yesterday in the al-Riyadh newspaper, which is close to the Saudi Arabian ruling family.

It quoted Abdul-Aziz al-Uwaisheg, head of studies and economic integration at the Gulf Cooperation Council, as saying: “Saudi Arabia might have started a study to change the riyal’s exchange rate, but it probably does not want to officially announce these studies to avoid creating concern in markets until a final decision is made.”

The Gulf Cooperation Council is a group of six states preparing for monetary union as early as 2010.

According to al-Riyadh, Mr al-Uwaisheg added: “There is a clear divergence over this issue, but . . . there is a common desire . . . to revalue and shift to a currency basket.”

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A currency basket would mean the riyal being pegged to a number of currencies, not only the dollar.

Mr Uwaisheg claimed later that he had been misquoted. Al-Riyadh stuck by its story, according to Reuters.

The council, made up of Saudi Arabia, the United Arab Emirates, Qatar, Oman, Bahrain and Kuwait, will discuss a proposal to revalue their currencies when heads of state attend a summit in Doha, Qatar, next month. Five of the six peg their currencies against the dollar. This year Kuwait switched to a basket of currencies, including the dollar, euro, yen and sterling. Since the switch, Kuwait’s dinar has strengthened about 5 per cent against the dollar.

Inflation in Gulf states has reached record levels, as imports from Europe become more expensive because of the weakening dollar. Sultan Bin Nasser al-Suwaidi, Governor of the UAE Central Bank, said last week that the country may drop the dirham’s peg against the dollar in favour of a basket of currencies. Abdullah al-Attiyah, the Qatari Energy Minister, said last week that the dollar’s decline was a “concern” to OPEC members.

Gulf nations pegged their currencies to the US dollar to stabilise revenue from oil, which is traded in dollars.

The reason why the Gulf States are sending contradictory 'messages' over the re-valuation of their currencies viv a vis the dollar is primarily political rather than economic...the economic arguments are manifestly obvious! Essentially the US is leaning heavily on the monetary authorities in the Gulf region (and beyond!) and warning of dire consequences if they opt for a more sensible basket of currencies. In the meantime there is rampant inflation - not just affecting imported labour from the sub-continent and S.E. Asia, either - and even many middle ranking professionals are genuinely feeling the pinch. Perhaps they need to! Of course, Gulf-based banks are maintaining a strangely muted stance as far as the sub-prime debacle is concerned!! Their greatest fear is that the property markets will crash...thousands and thousands of new properties are being built all along the Gulf coast - often with horrendous environmental consequences and to the detriment of the indigenous populations.

Alistair Pugh, Bahrain,

What's the problem? Really?

The US economy needs an impulse, and a weak dollar helps it along nicely. Raw materials become more expensive, yes, but alternative sources (recycling, alternative energy sources) become more viable. The US needs to drastically improve fuel efficiency, and price hikes make it possible to pass the buck from the government to the market, and the market will now ensure that improvements happen. The US needs to increase savings and cut down on spending ... the current financial climate guarantees that it will happen.

If other countries feel hard done by because of a depreciating dollar ... tough luck to them.

Golodh, London, UK

Is Bush aware of the situation concerning the dollar or is his time fully occupied in trying to convince the world that the invasion of Iraq has been a resounding success?
Assuming that he can spare a moment to address the end of the American empire does he understand enough about financial matters to act effectively?

Stephen Green, Correns , France

If only Iraq was a success. Had the Iraq invasion been a short, quick blitzkreig (as was predicted by Hannity and others on the right), everyone would be running to US dollars.

Bob davis, Las Vegas, Nv

Listen to Chavez,

Create OPEC bank and get rid of the US dollar.

Otherwise suffer the fate of death of the empire of war

Palomudo, Toronto, Canada

Wow. Maybe this guy Ron Paul is right. Maybe our currency should be backed by something real.

I wasn't sure but now I'm starting to like this Ron Paul guy for President. Everything he has been saying (even if I disagree) has been coming true.

Alyssa Alexander, Newport Beach , CA

the dollar got to go,these are different times now then it was 20 years ago,we no longer have to see the west as the only economic driving force in the world anymore,who got the oil has the power in the 21 century,and we have look after the interest of the oil rich states,and the affordability of oil to the rest of the world.the basket currency makes alot of sense.

saber, houston,

Spend more money on wars, don't invest in geothermal or anything else that could make a long term difference, keep giving billions to Israel with no strings attached, demonize Muslims after you tamper with their leaders and land, send Iraqi oil to Israel, keep dumping hundreds of tons of DU on people, and keep fighting a war on the concept of 'terror' - a war pig's wet dream. Yeah, the US is doing just freaking great. How Proud I am to be an American

Mike S, Santa Cruz, Ca

Interesting to say the least!
After the Wall came down, we found it was required to spread the wealth around and avoid social unrest inthe "New" Democracies. We were rewarded with a higher Stock Evaluation of our National Portfolio reflected in the Dow and other means.
Now OPEC. $100 a barrel entails elasticity; wake up you cant have both.
$100 a barrel or a devalued evaluation of the commodity we give back oin return or else we All loose.

Colin A Campbell, Toronto, Ontario, Canada

Does anyone ever bets on a loosing horse?

If it was my oil, wich is also the future of my people, I also would protect my oil by getting rid of the dollar.

Ponce, Oregon, USA

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