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Currency policy: Pressure builds on GCC dollar peg

With the dollar in seeming free fall, the Gulf Cooperation Council is set to discuss the wisdom of keeping its member states’ currencies pegged to the ailing currency.

Heads of state of the members of the Gulf Cooperation Council were set to discuss whether or not to alter their existing dollar peg when they met in Doha, Qatar, on December 3. According to a report entitled Gulf currencies: change needed and likely, written before the meeting by Gerard Lyons and Marios Maratheftis at Standard Chartered: "A revaluation of the GCC currencies is needed now and the region should begin preparations to shift their currencies away from a peg to the dollar to managing their currencies against a basket of currencies with which the Gulf trades."

The authors add: "This shift in currency policy is needed not only to reflect the present vulnerable state of the dollar, but more importantly to help position the region’s economy for both the cyclical and structural shifts that it is undergoing." The GCC members – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates – plan to move to a single currency by 2010. However, economic tensions make it unlikely that they can achieve the necessary level of convergence to see the plan through on time.

In the past, the GCC’s dollar peg has brought benefits.

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