StanChart Asks If ‘Umbilical Cord’ to Dollar Can Survive in Gulf - Bloomberg
The oil-rich monarchies of the Persian Gulf may eventually move to peg their exchange rates to a basket of currencies after decades of tethering them solely to the dollar, according to Standard Chartered Plc, opting for more flexibility as they diversify their economies away from energy.
Although the arrangements aren’t “under threat” right now, the currency regimes might become an ill fit during a period of economic transformation in the region, StanChart analysts including Carla Slim said in a research note on Thursday.
“The path from a fixed exchange-rate regime to a flexible one needs to occur gradually, with a likely transition through a basket peg,” they said. “Cutting the proverbial ‘umbilical cord’ would not only reflect the long-term outlook for the dollar, but also help local economies adjust to cyclical and structural shifts.”
Five of the six members of the Gulf Cooperation Council -- Saudi Arabia, the United Arab Emirates, Bahrain, Oman, Qatar -- maintain pegs to the dollar. Kuwait’s dinar already tracks the value of a basket of currencies believed to be dominated by the greenback.
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