Dollar depreciation 'won't affect Saudi'
Riyadh, December 1, 2011
The Saudi currency will not be affected by the depreciation of the US dollar, leading Turkish economist and strategist, Erda Gercek, said at a seminar hosted by Sidra Capital.
The currency exchange prices in the kingdom and the world will remain stable thanks to the US dollar reserves, he said.
The Sidra Capital hosted seminar focused on the US dollar and its future as world’s reserve currency.
Gercek presented an overview of the global financial and economic situation and provided further insight to the future of the dollar and its impact on the Saudi riyal.
Said Hani Baothman, CEO of Sidra Capital, said: “We hosted this seminar in order to shed light on the current volatility in the market as a result of the Euro crisis which has ballooned with each passing day, in addition to the festering economic crisis in the US as a result of their political indecision to tackle their mounting budget deficit and the swelling of their public debt.”
“Our aim is to connect with our shareholders and stakeholders in order to provide them with the most relevant and most objective information as it pertains to the persistent doubts about the ability of the US government to face the challenges ahead and what it means to the position of the US dollar as a reserve currency and how that might affect its position against the worlds’ major currencies,” he added.
The International Monetary Fund (IMF) in its New World Economy Report predicted that the dominance of the US dollar in the international financial system will end by 2025; and will be replaced by a tri-polar system of currencies that will include the greenback, the Euro and the Chinese yuan. The report further stated that this will happen when the dollar loses its position as an undisputed global currency by that year.
“On the heels of the publishing of this report, Sidra Capital hosted in this seminar seeking to promote a platform whereby we exchange ideas with our stakeholders and to help them to expand their knowledge and support them in making the right investment and financial decision in light of the current financial challenges,” Baothman said.
Gercek confirmed that the US dollar remains the world’s main reserve currency and that it will remain so for the foreseeable future and this is based on structural reasons such as the size of the American economy, which is still the largest in the world, the depth and breadth of America’s financial markets, which is still unchallenged and its liquidity remains unsurpassed.
More importantly, America’s institutional framework and its robust strength are still superior, especially in the areas of governance and the rule of law, which are paramount if economic activity is to be created and sustained over the long term.
“US can sustain larger trade deficits than any other country as capital inflows are almost guaranteed, however, capital inflows and consumer of last resort status guarantee large trade deficits,” Gercek added.
“Reserve currencies come and go, but there is no obvious one to replace the dollar yet. This does not mean US dollar is on a constant depreciation path. Currencies are mostly part of the solution not the problem. And weak dollar is exactly what the doctor ordered for the US economy.” Gercek said.
He discarded the rumors that America is printing more money, indicating that the US dollar’s strong position comes from exchange of reserves in US dollar between central banks and commercial banks. Thus, the American government is simply balancing the inflows and outflows to the US.
“Emerging markets cannot simply be bystanders to this process by hinting or engaging in a ‘currency war’. They were part of the problem during the buildup to the global imbalance. Now they need to be part of the solution and accept that the old model of mercantilist growth is no longer an option. Interconnectedness will make sure ‘one for all and all for one’. Failure to see this will have dire repercussions for all,” he said.
Sidra Capital held the seminar as part of its endeavor to contribute strategically to the development of Saudi’s financial sector by setting respectable benchmarks in conducting its business whilst creating employment and knowledge transfer. – TradeArabia News Service