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Arab fund urges GCC to drop dollar pegs.

DUBAI: The Arab Monetary Fund has called on Gulf Arab states to drop their pegs to the tumbling US dollar, saying revaluations would not solve the problem of soaring inflation, it was reported yesterday.

Arab Monetary Fund chairman Jassem Al Mannai had advised Gulf countries to switch to a managed float or peg their currencies to a basket, including the euro, sterling and yen, Emarat Al-Youm newspaper reported.

A summit next week of Gulf leaders could settle the future of their exchange-rate policies following a currency reform debate between its two largest members.

The UAE called last month for all Gulf oil producers to switch from fixed exchange rates to currency baskets.

Saudi Arabia, the world's largest oil exporter, could consider revaluing its currency for the first time in 21 years without dropping its peg, according to a source familiar with Saudi currency policy.

Revaluations alone will not solve the problem, the paper quoted Al Mannai as saying. "It will not be in the interest of Gulf countries and it will not help solve the problems that they are facing," he said. "It will not give these countries the freedom to fight inflation which is posing a growing threat to their economies."

UAE central bank governor Sultan Nasser Al Suweidi cited inflation in his call for reform, saying dollar pegs forced Gulf central banks to track US monetary policy to maintain the relative value of their currencies.

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Publication:Gulf Daily News (Manama, Bahrain)
Date:May 1, 2008
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