To de-peg or not to de-peg. That is the question

To de-peg or not to de-peg. That is the question

As the drop in the value of the US dollar this week gets the GCC Secretary General’s attention, Kipp dwells into the arguments of those who would de-peg the GCC’s currencies.

November 8, 2010 3:45 by Eva Fernandes

There are some debates in the Gulf that just don’t ever seem to reach a conclusion: Will there be a hike in oil prices or not? Will the private sector get the same number of Eid holidays as the public sector? And, of course, should the GCC de-peg its currencies from the US dollar? In a see-saw ride through recent turbulent economic times, every time the reports of a dollar slip hits the news stands, so too does the age-old question: Is it time for the GCC to follow the lead of Kuwait, to de-peg from the US dollar and instead peg its currencies to a basket of world currencies?

This week was no different. But as news emerges again of the debate, the reality on the ground is that the GCC has pegged its currency to the US dollar for the past 30 years and doesn’t look likely to change its policy. Still, Kipp puts the naysayers under the microscope, as we look at some of the arguments for de-pegging.

Avoiding an increase in inflation

American Nobel laureate Paul Krugman is one of the more vocal proponents of the de-pegging debate. Speaking to Gulf News in 2009, Krugman said the GCC has much to benefit from de-pegging its currency from the dollar, especially as he expects an upward trend in oil prices, in addition to a further decline in the dollar which (if pegging is still there) could increase inflation across the GCC.

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Tags: depegging GCC, dollar weak, dollar weak UAE depeg, US dollar peg, US dollar peg GCC, US dollar peg UAE