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Gulf Arab oil producers, torn between rising inflation and exchange rates fixed to a sliding dollar, could consider switching together to a currency basket to buy time for a troubled monetary union project.
A region-wide shift could catch investors unawares ... "They have been hinting at a more flexible option to the dollar peg. The debate is on, at a multilateral level," ... since Kuwait threw plans for monetary union into disarray by abandoning a dollar peg the six states had agreed would stay in place until they created single currency in 2010.
"The likelihood of moving in unison is greater than the likelihood of moving alone."
More importantly statements from Saudi Arabia, the country tipped as least likely to revalue in the Reuters poll, have begun to more closely reflect those coming from the UAE.
Originally posted by worldwatcher
People seem to think that the devaluation of the dollar is good thing... well maybe on paper it is and for certain industries it is.....
Originally posted by JSR
... would the manufacturing base start to come back to America?
Originally posted by Gools
The best and only way to protect yourself is to get out of debt as fast as possible and STAY out of debt. Only keep ONE credit cards for real emergencies and scale back on everything "in" and "fashionable" and live within your means.
I'm still calling for 2009 as the year the crap really hits the rotating motor.
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The Peg Precipice
OTTAWA — Inflation control measures in the Middle East are almost as rampant as inflation itself these days.
Qatar just froze the price of steel and cement, and extended a diesel subsidy. Bahrain is spending more than a billion dollars a year to subsidize food and fuel. The mainly foreign construction workers in United Arab Emirates have launched strikes and riots as they watch the value of their savings erode.
Gulf countries are swimming in oil wealth but drowning in inflation - caused in large part by their own unrestrained consumer demand, and their insistence on hanging on to fixed exchange rates, analysts say.
...
Pegged exchanged rates prevent those countries from raising interest rates to keep inflation under control. Instead, to maintain the exchange rate, they have to match U.S. monetary policy. Interest rates in the United States are highly stimulative, however, designed for an American economy struggling to avoid a recession - not a Gulf country whose coffers overflow with oil money.
Qatar's inflation is running at about 14 per cent. Egypt is at 19 per cent.
The average for the region just two years ago was a mere 2 per cent.
economists and currency traders wonder whether Gulf countries will soon be forced to move away from their inflexible currency pegs to the U.S. dollar and opt to peg to a basket of currencies or float freely. That would trigger a loss of confidence in the already shaky U.S. dollar and send the greenback into a downward spiral.
"You're going to get huge instability one way or another. You're going to get it if they un-peg, or you're going to get it when the inflation finally gets loose domestically," he said.
Originally posted by Gools
Tick... tick... tick...
If you think 2008 is bad for your pocketbook wait until next year.