On: Monday – October 19, 2020
Hussam Alamuddin – A report by Bloomberg said that about a decade ago the Gulf states resisted to maintain their peg to the US dollar as it retreated after the global financial crisis at the time, but today the fall of the green currency may give some reassurance to the region’s currencies, and extend non-oil economic fields such as tourism. With a positive push once the Corona pandemic begins to recede. The agency’s report indicated: Going back to 2007 and 2008, the weak dollar led to higher import costs and allowed inflation to grow at the time in the Gulf countries, in addition to Brent crude prices approaching $ 150 a barrel 12 years ago. Now, the slowdown in domestic demand in most sectors has limited price growth, while the depreciation of the US currency during this period could push the non-oil sectors forward once the outbreak of the Coronavirus subsides. Bloomberg quoted Monica Malik, chief economist at Abu Dhabi Commercial Bank, “The decline in the dollar will be positive for the Gulf countries once the impact of Corona diminishes, and the link of Gulf currencies to the dollar remains an important pillar of the region’s economies and capital flows to them.” The agency’s report stated that the six Gulf countries had adopted foreign exchange systems since the early 1970s, and had survived successive years of low oil prices in the 1990s, the period of weakening of the dollar before the global financial crisis in 2008 and the collapse of oil prices again in 2014, indicating Until Kuwait alone decided in May 2007 to link the dinar to a basket of currencies, with the acceleration of inflation at that time. The report added: Earlier this year, the bets for devaluation of currencies escalated after the oil price fell to its lowest level in 18 years, which hurt the economies of the Gulf countries and raised questions about their foreign currency reserves. Since then, merchants have reduced their bets on devaluing Gulf currencies, as Gulf countries cut spending and subsidies and turn to debt markets to finance their budget deficits. Pricing oil and gas in dollars helped protect the region’s countries from volatile energy markets, and allowed their central banks to accumulate foreign currency reserves in good times when oil and gas prices were high. For his part, Robert Moglenke, a researcher at the Arab Gulf States Institute in Washington, said: The most important thing to link Gulf currency rates to the US dollar is not short-term fluctuations in the value of the green currency, but rather access and possession of sufficient amounts of foreign currencies in the medium term.
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