Saudi central bank governor Muhammed Al Jasser has
reaffirmed the Kingdoms commitment to the US dollar, amid
growing fears that the worlds reserve currency is headed
for a sharp decline.
In an exclusive interview with Emerging
Markets, Al Jasser said he saw no need to
abandon the dollar peg that had served our interests
One hundred per cent of our exports are in the
dollar, more than 70% of our imports are denominated in the
dollar. Why would you want to give up such a natural hedge
without a better alternative? Right now I dont see
Al Jasser pointed out that a dollar peg provided
a reasonable anchor of transparency and clarity on
the value of goods and services. Following the demise of the
gold standard there are no longer any absolute values of
currencies and the relative values of currencies are in
flux, he noted.
His comments came amid mounting concerns about the
dollars decline. World Bank chief Robert Zoellick
recently said that, without substantial rebalancing, the
greenbacks days as as the pre-eminent reserve currency
are numbered, while Mohammed El Erian, co-chief executive of
Pimco, asked by Emerging Markets recently whether the
dollar is in structural or cyclical decline, said:
Al Jasser added that a proposed Gulf monetary union
which he expects will be launched by next January would
take a pragmatic stance towards exchange rates in fixing the
value of its proposed currency.
Saudi Arabia, like all Gulf Cooperative Council (GCC) states
bar Kuwait, pegs its currency to the dollar, forcing the
central bank to track the US Federal Reserves monetary
policy. At present, low US interest rates suit Gulf states as
they look to spur economic growth but as their economies
recover, a fixed exchange rate risks stoking inflation.
Al Jasser pointed out that the Saudi Arabian Monetary
Authority was very pragmatic when it comes to this
issue, leaving the door open to a future shift if
economic conditions warrant it.
There are no emotional or political attachments to any
system, including the dollar. It has just happened to serve our
interest well at this stage.
There are no fetishes or illusions about what system
is perfect. Its not like we adopt a system and go to
sleep, he said. We worry about all of these things,
we analyse, and take action when necessary.
Observers say that if the GCC decides to establish a new
currency as planned by 2010, Saudi Arabia and other states may
have to revalue their currencies.
Al Jasser said that a monetary union deal between Gulf
States would be ratified within months. Im
optimistic by the end of this year or by the beginning of
January 2010 that it will be ratified and the monetary council
will be formed.
Oman and the United Arab Emirates have withdrawn from the
plan, which envisages one central bank for the region and
greater trade and finance cooperation. Kuwait, Saudi Arabia,
Bahrain and Qatar are still committed to the project.
Im very optimistic that the other two will come
back when the time is right, said Al Jasser.
Soaring inflation last year led to widespread calls for Gulf
states to sever ties to the greenback. The dollar peg was
blamed for driving up credit growth due to low interest rates,
as well as for pushing up imported inflation as the dollar fell
against global currencies.
Al Jasser said that there was no reason yet to
change the central banks foreign exchange reserve
management strategy, but that the monetary authority must keep
watch for emerging risks. Its dynamic. So long as
[the strategy] does not compromise the central
banks basic three basic elements maintaining
liquid reserves, held in secure assets, and seeking risk
returns we will manage proactively.
The greenback tumbled last Friday after employers cut
more jobs than expected last month, driving unemployment up to
a fresh 26-year high despite having already weakened
more than 10% since April.