DUBAI, (Reuters) – The United Arab Emirates is committed to keeping its currency tied to the dollar, its central bank governor said in remarks published on Thursday, a day after the dollar hit a record low against the euro.
Sultan Nasser al-Suweidi said the dollar “was heading towards a rise, therefore it is illogical to talk now about dropping the link of the dirham to the dollar”, according to paraphrased remarks reported by al-Ittihad newspaper.
The dollar slid to a record low beyond $1.51 to the euro on Wednesday on growing concerns the world’s largest economy is headed for a recession.
Dollar pegs restrict Gulf countries’ ability to fight inflation by forcing them to shadow U.S. monetary policy at a time when the Fed is cutting rates.
Former U.S. Federal Reserve Chairman Alan Greenspan said earlier this week near-record Gulf Arab inflation would fall “significantly” were the oil producers to drop their dollar pegs and float their currencies freely.
Suweidi said the link to the dollar was not the only reason behind spiralling inflation.
“Greenspan was proposing several scenarios to reduce pressure on Gulf economies which are suffering from a rise in the level of inflation for several domestic and foreign reasons … not exclusive to their currencies’ peg to the dollar.”
“The link has led to more capital flows to Gulf (Arab) economies). The countries of the region have witnessed more commerce and more business activity. It also helped prepare for the (Gulf) monetary union,” the paper quoted Suweidi as saying.
Gulf economies, which are aiming for monetary union, have been surging on a near five-fold rise in oil prices since 2002.