Kuwait saw this:
and got rightly concerned, so:
Kuwait drops dollar peg in blow to Gulf currency union
KUWAIT, May 20 (Reuters) – Kuwait unshackled its dinar from the tumbling U.S. dollar on Sunday and switched the exchange rate mechanism to a basket of currencies, throwing plans for currency union with other Gulf Arab oil producers into disarray.
Kuwait’s central bank, which battled speculators for weeks to defend the peg, said the dollar’s slide against other currencies had forced it to break ranks with fellow Gulf states to contain inflation from the rising cost of some imports.
Reuters
Now I do hope that the others follow. I see no reason why we should be beholden to a tumbling currency when we import a lot more from Japan and Europe than we do from the States. It is eating us up and my company for instance is no longer competitive in some projects as I have to pay top prices for products from Germany and the UK.
So come on Bahrain, follow suit, sooner rather than later please.
picture credit chicken smith
Comments
I always thought of dropping the peg on the US$ as one of the solutions to the escalating price inflation in Bahrain. Especially during Bush presidency, the dollar dropped sharply against all currencies and I was directly affected by that as someone with personal trades with foreign countries let alone retailers etc who’s main business in not with the US.
Because we are financially closely tied with KSA I guess nothing like that would happen without the Saudi Riyal doing it first.
I agree Mahmood, the Dollar has been weakening since the introduction of the EUR(O).
I believe there probably has been continuing pressure by the US government on the GCC states to continue their support by pegging against the Green Back, if not for the sole purpose of having OIL at an acceptable price (pre 911) the then to keep us hooked and on life support.
The GCC must cut the umbilical cord which was a source of life support; but has now become a ball and chain pulling us further in to inflation.
A basket of currencies is the route to follow.
For once, i hope the GCC stated work together one this and implement it at the earliest.
The war in Iraq was tied to currencies. As Saddam decided to switch to euro payments in lieu of dollars (being broke), plans were made to invade Iraq to not only secure oil flow, but prevent the switch to euros. (see for example http://www.energybulletin.net/7707.html). Whatever the official reason for war is, you guys can see that the financial will always win. Since I’ve moved to the US (10yrs ago) I’ve become pretty cynical and have found that whatever the rhetoric, it’s all about following the money trail. Do you think that there will be any backlash against this switch to Euros? It would be interesting to see. As much as you would want to change due to not only falling of the $ but it’s debt.. it would cause a major ‘crash’ for a few economies, most notably the US. And in this global economy, the crash will surely cause a great ripple effect..
Ingrid
I would be INCREDIBLY amused if the US ever switches to pegging our money to something like the Euro.
You are right mahmood, they should make a move and the sooner the better.. i am in the UK and the exchange rate is killing me.. 3 years ago it was around 500 fils for a pound, now its almost 800 fils !! 300 fils is not a big deal but it has an impact on a big sum of money !!
As far as i am concerned, Bahrain will not change its exchange rate mechanism according to a spokesman on behalf of the ministry of finance (an article published in, i THINK, tradearabia.com few months ago)..
we really demand a single currency for GCC, or at least a better exchange rate mechanism to offset this inflationary pressure…
Let’s move on. Tying your currency to a currency that you have no control over the decisions that affect it is not really wise IMO.
Hey guys, actually there are major benefits to the fact that we are pegged to the dollar.. as long as oil (our major export) is priced in dollars, we pretty much have to peg our currency to the dollar, otherwise the government budget will be in complete disarray.. I think thats the main benefit of the dollar peg
oil can be sold in euros buddy iran is doing it..
A “Federal Reserve Note†is not a U.S.A. dollar. In 1973, Public Law 93-110 defined the U.S.A. dollar as consisting of 1/42.2222 fine troy ounces of gold.
Ingrid,
plans were made to invade Iraq to not only secure oil flow, but prevent the switch to euros.
Gimme a break. Maybe you should hook your residence back to wherever you came from if you are that cynical about the US. That comment was just plain insulting. And silly. And you can’t possibly believe it (you live in the US, you know how much the war in Iraq has damaged the US economy) – therefore, you must have made that comment with the intention of insulting. Not a nice way to treat your host country.
Craig
Whilst Ingrid’s comments may have been inaccurate (in your view) you are free to express that opinion. But to say they were insulting smacks of paranoia
Test.
Ibn, that was in the spam bucket again.
I have tagged it as “not spam” and submitted it (automatically) to Akismet which should not block your comments as spam any longer unless another Akismet user marks your comments as spam, then you’re in trouble and I can’t help! 😉
Good news to me
Does it mean that the value for the $ is less?
finally the fall of the Almighty $.
Conspiracy theories like Ingrid’s are just silly and should therefore be ignored. Surely what is important here is the rate of inflation, rather than the value of the dollar. And the rate of inflation is driven by increasing wage settlements for Bahraini workers. If there were no wage increases, there would be much lower rates of inflation.
The value of the dollar is a separate issue. The way to avoid it affecting your business is to only buy from/sell to suppliers/customers that are in dollar-based economies – ie buy Bahraini and not only do you increase demand for local products, you also retain your price competitiveness.
From a selfish point of view I hope that the rest of the GCC follows Kuwait on this. As a UK expat in the UAE the AED/Sterling exchange rate is crippling us.
Uh, can you tell me please where I can pick up a locally manufactured hi-end microphone system with a pre-amplifier? Oh, okay, how about just a crappy mic, any crappy mic that is manufactured here and I’ll gladly support the local economy.
The truth of the matter is that there is hardly any industry, and probably no high-tech industry at all in the Middle East so we have to spread the nets a bit wider and get what we need from outside.
Which one is the bigger problem, that Oil is generally priced in US Dollar, or we have nothing much to export other than Oil, or that our currency is pegged to the dollar and no obvious acts of fixing this problem are seen from the authority?
there are many things to be concedered to fight this infaltion, but come to think about it, is it benifiting the right people or is it not effecting the right people, YET!!
Euro is a success story. 😎
On the contrary situation of dollar is self-inflicted: Double-Deficit, war, bad government.
Euro a success story ? EMU is in shambles buddy. Too many rigidites, not enough flexibility, if you live in Germany you must know that better than anyone else.
I fancy the idea of us having a floating currency, but our dependence on Oil and possibly lack of a foundation for a credible monetary framework will probably be sufficient to deter any freeing of the currency.
That said, things are not looking great for the dollar, most likely to depreciate further in the next year or so given the size of the US current account deficit.
A weighted basket of major currencies – peg, with the weight depending on the size of our trade flows in that currency, would probably be most beneficial. Government can probably get a swap deal on its income from oil through financial markets if it values certainty with regards to oil income so highly.
Please feel free to disagree,
Craig.. go back to where you came from.. oooh..I’m so hurt, NOT!
If your tone wasn’t so knee jerk, it would be worthwhile to engage in discussion (in civilized manner). There are plenty of red blooded Americans who are far more cynical about the US than I even am. In fact, I have a life and kids and well, there goes your life sort of.. so I don’t think I could bear dealing with the sad reality of this thing called ‘the greatest democracy in the world’. But.. like I said, the information is out there and all those so called conspiracy theorists are not just nut jobs with a bad outlook on life.
Anonymous..thanks!:smile:
Ingrid
Please excuse Ingrid. She’s been sitting too long on the grassy knoll.