Bahrain rejects change in currency's dollar peg


From Reuters
via Khaleej Times, Dubai
Sunday, January 14, 2007

MANAMA, Bahrain -- Bahrain will not change its policy on pegging the dinar currency to the US dollar, the central bank governor said on Sunday after the United Arab Emirates raised the prospect of a region-wide revaluation.

"I have said repeatedly that our policy is not going to change and our position still stands," Rasheed Al Maraj told reporters in Manama. "We have seen weakness in the dollar from time to time and it comes back."

UAE Central Bank Governor Sultan Nasser Al Suweidi told Reuters on Thursday that Gulf Arab oil producers were reviewing currency pegs to the falling dollar and could decide as early as March whether to keep or change their exchange rate regime.

It was the first acknowledgement the Gulf might not stand by a currency regime designed to prepare for monetary union in 2010, although markets began speculating about a revaluation last year as the dollar fell around 10 percent against the euro.

The rising cost of non-dollar imports was one reason Gulf Arab central bank governors were reviewing the pegs, Suweidi said.

In October, Al Maraj told Reuters import costs were raising inflationary pressure in the Gulf island state. He has repeatedly said Bahrain does not plan to revalue its currency.

Suweidi’s comments on Thursday pushed up currencies across the world’s top oil-exporting region, where the UAE, Saudi Arabia, Kuwait, Qatar, Oman, and Bahrain are working toward monetary union.

Oman, which announced last month it would not join monetary union by 2010, also says it has no plans to revalue its rial currency.

Suweidi said the governors could opt for more flexible exchange rates, instead of the fixed pegs now maintained by all states except Kuwait, which revalued its currency last year.

They may decide to peg to another currency or basket of currencies, he said, declining to comment on what currencies were being considered.

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