----- Original Message -----
From: Gold Anti-Trust Action Committee
To: [EMAIL PROTECTED]
Sent: Friday, December 29, 2006 10:39 AM
Subject: [GATA] Will Gulf countries follow UAE in dollar drop?
Will Gulf countries follow UAE in dollar drop?
Submitted by cpowell on 08:39AM ET Friday, December 29, 2006. Section: Daily
Dispatches
Emirates Narrowing Dollar Reserves
By Jim Krane
Associated Press
Thursday, December 28, 2006
http://news.yahoo.com/s/ap/20061228/ap_on_bi_ge/emirates_selling_dollars
The wilting U.S. dollar is pushing the United Arab Emirates, a close U.S. ally,
to convert 8 percent of its foreign exchange reserves into the healthier euros,
the central bank governor said on Thursday.
The Emirates' nearly $25 billion currency reserves are currently 98 percent
dollars. That percentage will drop to 90 percent in six to nine months if the
bank's directors approve the switch as is expected, Central Bank governor
Sultan Bin Nasser al-Suwaidi said.
The sale itself is a small one, worth about $2 billion. But the implications of
a cash-rich friend of Washington selling off its dollars is a sign that central
banks elsewhere may be looking to cut losses from a dollar widely expected to
slip further in 2007.
"It's a prudent move and it's indicative of broader thinking," said Simon
Williams, HSBC's chief Middle East economist. "It's another factor that will
exert downward pressure on the dollar."
The dollar fell to $1.3132 euro in European trading on Thursday, compared with
$1.3123 in New York on Wednesday.
A bigger worry for the U.S. Federal Reserve Bank is that the six energy-rich
Gulf Arab countries may consider converting dollar holdings in their far larger
government investment funds, which Williams said keep more than $1 trillion
under management. Gulf governments typically do not release the compositions of
those funds.
"If they're moving those assets out of the dollar on the same scale, that's a
much bigger deal," Williams said.
Selling dollars on that scale could force the Fed's hand toward tightening
monetary policy to help support the dollar. That would mean higher rates for
adjustable mortgages, auto loans, credit cards and other debt.
The six Gulf Cooperation Council countries -- the Emirates, Saudi Arabia,
Kuwait, Qatar, Bahrain, and Oman -- enjoy a collective current account surplus
of around $220 billion this year, which must be invested in foreign assets.
With a faltering dollar, Williams said a smaller amount of that energy surplus
will flow into U.S. assets.
"A good chunk of that will still flow toward the U.S., but less than in the
past," he said. "The Fed will be watching this very closely."
Other countries, including Russia, Venezuela, Indonesia and Iran also have
decided to cut their dollar reserves or, in Iran's case, start pricing oil in
the European currency.
During OPEC's Nigeria summit this month, OPEC President Edmund Daukoru said the
organization was "not rushing into other currencies." But since global oil
purchases are made in dollars, the shrinking dollar slashes the purchasing
power of oil exporters.
The Emirates decision to sell off its dollar holdings comes against a backdrop
of strain in its normally warm relations with Washington.
Many here were upset earlier this year when the U.S. Congress blocked the sale
of U.S. port operations to Dubai-based DP World -- a move that officials here
said smacked of anti-Arab bias. Since then, talks on a free trade pact between
the Emirates and Washington have also faltered.
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178 West Service Road
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Toll Free:1-877-775-4826
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and
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Lone Star Silver Exchange
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MRCS Canada
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Swiss America Trading Corp.
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The Moneychanger
Box 178
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Franklin Sanders
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