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Greenspan tells Gulf to drop dollar
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| Contributor | kal |
| Last Edited | kal Feb 26, 2008 04:53pm |
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| Category | General |
| News Date | Tuesday, February 26, 2008 10:00:00 PM UTC0:0 |
| Description | Alan Greenspan, the former chairman of the US central bank, or Fed, has said that inflation rates in Gulf states, which are reaching near record levels, would fall "significantly" if oil producers dropped their US dollar pegs.
Speaking at an investment conference on Monday in Jedda, Saudi Arabia, he said the pegs restrict the region's ability to control inflation by forcing them to duplicate US monetary policy at a time when the Fed is cutting rates to ward off an economic downturn.
Debate is rife in the Gulf on how to tackle inflation.
Levels have hit seven per cent in Saudi Arabia, the highest in 27 years and a 19-year peak of 9.3 per cent in the United Arab Emirates in 2006.
Free float?
"In the short term free floating ... will not fully dissipate inflationary pressure, although it would significantly do so," Greenspan said.
Saudi and UAE central bank chiefs are in favour of retaining dollar pegs, but Sheikh Hamad bin Jassim bin Jabr al-Thani, the prime minister of Qatar, is pushing for regional currency reform to avert possible unilateral revaluations designed to curb inflation.
According to Hamad Saud al-Sayyari, governor of the Saudi central bank, floating the Saudi riyal would not be appropriate for an economy that relies on oil exports.
"Floating is beneficial when the economy and exports are diverse ... as for the kingdom it remains reliant on the export of a single commodity," he said.
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