Qatari riyal to stay pegged to dollar for now
Doha, December 3, 2009
Qatar's riyal currency will stay pegged to the dollar for the time being, but all possibilities will be considered for the planned Gulf monetary union, Central Bank deputy governor Sheikh Fahad bin Faisal Al-Thani said on Thursday.
The peg issue is gaining momentum again as the dollar retreated to 16-month lows and oil prices recovered, helping economies in the world's top oil exporting region emerge from a downturn.
"The Qatar Central Bank is aware of the recent developments in the US dollar," Sheikh Fahad said in an e-mailed response to Reuters' questions.
"However, it has been reiterated that the Qatari riyal would continue to be pegged to the US dollar for the time being," he said. "... all possible arrangements would be explored in light of the formation of the GCC monetary union."
Qatar, one of the world's top investors through a sovereign wealth fund, had been repeatedly questioning the peg since last year, when it reeled under record inflation, which stemmed in part from the linkage to the dollar and record oil prices.
The peg came under fire again last month when an adviser to Qatar's ruler said oil producers should be more willing to discuss the viability of linking their currencies to the dollar.
Qatar's central bank is targeting the exchange rate as a nominal anchor with the riyal pegged at 3.64 a dollar. The world's top liquefied natural gas exporter is a part of a planned monetary union with three fellow Gulf states -- Saudi Arabia, Kuwait and Bahrain.
The United Arab Emirates and Oman, other members of the Gulf Cooperation Council (GCC) have opted out of monetary union.
Kuwait said last month fellow monetary union members should discuss linking the planned single currency to a basket instead of the dollar.
Saudi Arabia, the top Arab economy, followed by saying a basket was one of the options, putting the greenback's regional status in question as countries have long said the single currency is expected to be linked to the dollar.
The dollar peg is a sensitive issue in the region, where the leading economies -- Saudi Arabia and UAE -- have strong political and economic ties to the United States.
The Gulf countries have adopted fixed exchange rate regimes in the past to stabilise their currencies and import low inflation from overseas.
Kuwait, the world's fourth largest oil exporter, broke ranks with fellow Gulf states in 2007 and dropped the peg in favour of a currency basket to help fight then-soaring inflation.
When asked about the timing of Qatar's ratification of monetary union, Sheikh Fahad said: "Qatar is a strong and active proponent of the GCC monetary union, which is scheduled to commence by 2010."
Only Saudi Arabia has ratified monetary union so far, although Bahrain is aiming to clear the project before Gulf rulers meet in Kuwait on Dec 14-16. Kuwait parliamentarians delayed voting on monetary union to December 8.
Sheikh Fahad also said it made sense to keep the dollar as a pricing unit as oil trade as well a large part of foreign trade is invoiced in the greenback.
"As major items in the consumption basket of Qatar are imported goods, the fixed parity between the Qatari riyal and the US dollar helps in minimising large fluctuations in consumption," Sheikh Fahad said.
"Hence, keeping the dollar as a pricing unit for trade is justifiable in a pegged exchange rate regime."
A long-running debate over the currency used for commodity dealings was revived again in October by a British newspaper that said China, Japan, Russia and France were in secret talks with Gulf Arab states to stop using the dollar for oil trading.
Big oil producers denied it at the time, but dollar weakness has kept the question of whether it can remain the world's reserve currency.
In November, Ibrahim Al-Ibrahim, the economic adviser to Qatar's ruler, told Reuters there was no real effort in the Organisation of the Petroleum Exporting Countries to change the oil trade pricing unit. But Qatar's oil minister Abdullah bin Hamad Al-Attiyah said in October the debate was ongoing on using the US dollar for oil trade or shifting to a basket of currencies. - Reuters