gulfnews : In Theory: GCC banks face dollar peg conundrum

Despite the financial and economic difficulties suffered recently by the US economy, the central banks of many Gulf Cooperation Council (GCC) countries have stressed that they will continue to peg their currencies to the dollar.

There are technical reasons for this. There is the link between oil revenues and the dollar, as well as the financial and monetary complications that may surface as a result of the de-pegging process, due to the current global financial situation. Also, an important part of Gulf central banks' reserves are pegged to the dollar.

All this seems reasonable. However, there have been announcements by certain governors of Gulf central banks that GCC banks do not own any financial instruments issued by the US government — including US treasury bonds — because of the drop in the revenues of these securities. This contradicts prior data from the same sources which said that 97 per cent of their reserves are dollar denominated.

* username: rupertbu