The dollar is still king

The dollar is still king

Analysts at the Country Risk Conference say the US dollar’s status as the premiere reserve currency is unlikely to change

May 12, 2009 10:57 by Parinaaz Navdar

Experts on the panel at the inaugural Country Risk Conference said on Monday that world economies will recover only when US’s economy recovers, because the US dollar is the most widely used reserve currency. The conference held by Coface and Export Credit Insurance Company of the Emirates (ECIE) aimed to tackle issues such as how the Middle East can navigate its way out of the current global crisis, and the outlook for the US dollar.

The US dollar is the “premiere reserve currency” said Timothy Fox, chief economist at Emirates-National Bank of Dubai. It’s what most currencies in the world are pegged against and the currency that most countries trade in, so chances of the dollar losing its status as the premiere reserve currency are slim.

He says that for sophisticated and rapidly growing economic areas such as the GCC an inflexible linkage to the dollar can be detrimental. In early 2008, analysts said the UAE and other GCC countries saw a high rate of inflation owing to the pegging of Gulf currencies to the US dollar, at the time of devaluation of the latter against other major currencies of the world.

According Fox, “alternatives to the dollar also remain relatively unattractive. The gold market is too small to be considered a real alternative and dumping US assets is not an option for countries that enjoy US military support.”

“This is why a single currency like the Euro is probably the most accurate way for the GCC to address the issue of flexibility. And the region seems to be moving slowly, surely in that direction”, he said.

Saudi Arabia, UAE, Kuwait, Bahrain, Qatar and Oman agreed in 2001 to form a EU-style monetary union by 2010 to boost regional trade. Oman opted out of the union in 2006, and the rest of the member countries recently decided on Riyadh for the location of the Central Bank. The member states recently announced that they will work on a revised timetable to issue the new unified currency, the first official admission that the Gulf will fail to meet its 2010 deadline.