Greenspan tells Gulf to drop dollar
Al Jazeera.net – February 25, 2008
Alan Greenspan, the former chairman of the US central bank, or Fed, has said that inflation rates in Gulf states, which are reaching near record levels, would fall "significantly" if oil producers dropped their US dollar pegs.
Speaking at an investment conference on Monday in Jedda, Saudi Arabia, he said the pegs restrict the region's ability to control inflation by forcing them to duplicate US monetary policy at a time when the Fed is cutting rates to ward off an economic downturn.
Debate is rife in the Gulf on how to tackle inflation.
Levels have hit seven per cent in Saudi Arabia, the highest in 27 years and a 19-year peak of 9.3 per cent in the United Arab Emirates in 2006.
"In the short term free floating ... will not fully dissipate inflationary pressure, although it would significantly do so," Greenspan said.
Saudi and UAE central bank chiefs are in favour of retaining dollar pegs, but Sheikh Hamad bin Jassim bin Jabr al-Thani, the prime minister of Qatar, is pushing for regional currency reform to avert possible unilateral revaluations designed to curb inflation.
According to Hamad Saud al-Sayyari, governor of the Saudi central bank, floating the Saudi riyal would not be appropriate for an economy that relies on oil exports.
"Floating is beneficial when the economy and exports are diverse ... as for the kingdom it remains reliant on the export of a single commodity," he said.
The dollar peg was also defended by Sultan Nasser al-Suweidi, the UAE central bank governor, at a conference in Abu Dhabi on Monday.
He said the policy was helping Gulf states attract foreign investments.
"They did very well for our economies because it has led to more capital flows," al-Suweidi said.
Qatar, has the region's highest inflation, and is considering the revaluing of the Qatari riyal to combat inflation currently at 13.74 per cent.
The exchange rate contributes to about 40 per cent of inflation in Qatar, where the riyal is believed to be 30 per cent undervalued.
"We prefer always to act with all the GCC countries," Sheikh Hamad said. Q
atar currently chairs the six-nation Gulf Cooperation Council.
"It's now time for the Gulf to have its own currency," he said.
Sheikh Hamad said such a currency should be "like the Japanese yen or other currencies".
Deutsche Bank said last month that both Qatar and the UAE will probably cut ties to the US dollar this year and track currency baskets as Kuwait did last May.
A reminder of those who are grateful for his services.
Knighthood for Fed's Greenspan
CNN – September 26, 2002
The honour, recommended by the UK Foreign Office and approved by the Queen in August, is in recognition of Greenspan's "contribution to global economic stability."
Greenspan, 76, has been dubbed the second most powerful man in America and has steered the country's economy through four presidencies.
"It's a very unusual day for an economist," he said, as he received the knighthood at the queen's Balmoral estate in the Scottish Highlands.
"I am deeply appreciative of this honour which I shall always cherish," he said.
He joked with the Queen and her husband, Prince Philip, saying he was tired because the "British Government put me to work yesterday."
He arrived in London on Wednesday and made a series of speeches to business leaders and dignitaries at both the Treasury and the Bank of England about the impact of the euro.
London was still at the "top of the financial pyramid" with New York, he said, despite predictions that foreign exchange trading would shift to the Continent following the introduction of the euro.
Greenspan was honoured by the Governor of the Bank of England, Sir Edward George, and British Chancellor Gordon Brown at a dinner on Wednesday night.
Greenspan cannot call himself "Sir" since he is not a UK citizen.
However, he will be able to add the letters KBE -- which stand for Knight Commander of the British Empire -- after his name.
It is an honour shared by former U.S. President Ronald Reagan, former U.S. President George Bush, former New York Mayor Rudy Giuliani, entertainer Bob Hope and U.S. Gen. Norman Schwarzkopf.
Greenspan was decorated with the prestigious French Legion of Honour (Commander) in 2000.
He has also received honorary degrees from Harvard, Yale, Pennsylvania, Leuven (Belgium), Notre Dame, Wake Forest and Colgate universities.
The son of a stockbroker and a retail worker, he took up his current post in 1987 and has kept his position through the presidencies of Reagan, Bush senior, Clinton and Bush junior.
His fourth term as chairman of the Federal Reserve Board ends in 2004.
Last updated 03/03/2008