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A New Currency Profile for the GCC- Union Delayed but Rerisking after Dubai will mean The End of 'Quasi-Sovereigns?'

( 1/2)29-Nov-09 By Maan Barazy
GCC currencies have long-standing links to the U.S. dollar. Kuwait exited its dollar peg in 2007, pegging instead to a basket in which the dollar dominates but the other countries maintain the pegs. While granting some macroeconomic stability, these pegs limit monetary autonomy as it implies that the real interest rates in the region are linked to U.S. rates. GCC countries have planned to create a monetary union loosely modelled on that of the EMU, but two of the six countries (Oman and UAE) have demurred from the process and the others have sought a deferral. Yet, officials have placed revaluation against the U.S. dollar off the table for the forseeable future.
Moreover the pegs constrain the regions asset allocation as declines in the dollar tend to put pressure on local exchange rates. In 2007, GCC central banks purchased a significant sum of U.S. dollars to maintain their pegs in the face of revaluation pressures.
READ all of our wires on the Dubai debt debacle  clickhere
 

OTHER TOP STORIES Deloitte report on SWFs Deloitte published a report on sovereign wealth funds and their investments in real estate market. "Sovereign Wealth Funds: Real Estate Partners in Growth?" also presents figures on SWF recent investments in real estate and financial institutions.   From the WEB Reuters Sovereign wealth seeks bigger slice of buyout pie  Sydney Morning Herald Future Fund consortium leads the property charge  Financial Times EQT and Singapore fund seal €2.3bn Springer buy  Bloomberg Future Fund May Join Canada Funds' Transurban Bid  American Banking News Kuwait Sovereign Wealth Fund Rakes in $1.1 Billion in Profit After  Reuters Markets need progress in Copenhagen, says Norway's SWF  WSJ Asian Sovereign Funds Learn Tough Lessons  FinanceAsia Asian sovereign funds are biggest SWF spenders in 2009  AltAssets CIC to take €800m stake in €11.2bn Apax buy-out fund  Malaysian Insider Khazanah to maintain Penang heritage sites, not state    » Moody's: Dubai World restructuring unlikely to threaten sovereign credit of UAE and Abu Dhabi » Alwaleed says ‘mature’ banks made wrong assumptions on Dubai » Dubai World updates lenders on recent developments » Gulf Bank announces participation in unfunded syndicated facilities for Dubai World » Arqaam Capital sees economic recovery approaching Kuwait » Dubai World updates lenders » Moody's downgrades Dubai GRI ratings » Bahrain-based GFH lowered To 'BB+/B' on weakened stand-alone credit profile

Special Coverage Dubai's Debt Analysis : Where do we go from here ? Is it a lack of vision? or simply a system that went wrong because of too much vision? Dubai World, a state-ownedholding company struggling with $59 billion of debt and other liabilities, said Nov. 25 it would seek a standstill agreement with creditors and an extension of loan maturities until at least May 30, 2010. The news led to a slump in financial markets around the world and raised prospects of rising loan losses for U.A.E. and foreign banks.The benchmark three-month Emirates interbank offered rate was at 1.919 percent on Nov. 25, the last working day before a religious holiday, according to Bloomberg data. The U.A.E. has 24 local banks and 28 units of foreign lenders operating in the country, including those of Citigroup Inc.,. More…   READ all of our wires on the Dubai debt debacle  clickhere

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