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UAE considers diversification
of its currency
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Web posted at: 9/10/2006 2:59:36 Source ::: REUTERS ABU DHABI The United Arab Emirates central bank will watch the impact of US monetary policy on the dollar and wait for a dip in the euro before diversifying its currency reserves, the banks governor said yesterday. The Gulf Arab oil exporters central bank decided this year to convert 10 percent of its largely dollar-denominated foreign exchange reserves into euros and gold, but governor Sultan Nasser Al Suweidi said the switch had not yet been carried out. With the US Federal Reserve halting a two-year campaign of monetary tightening in August, Suweidi told Reuters he wanted to assess the impact of monetary policy on the dollar. We are waiting to see the outcome of that decision. Theres a shift in the strategy of the Fed. That will entail a new strategy on our side, he said. We expect the Federal Reserve will stop hiking interest rates, and (cut) interest rates as a matter of fact, in...6-9 months from now, he later told reporters after meeting central bankers from the across the worlds top oil exporting region. With analysts predicting an end to Fed policy tightening, the euro is gaining lustre in the eyes of many investors, especially with the European Central Bank expected to keep raising rates into next year. DOWNTREND The dollar has fallen more than 7 per cent against the euro this year. It has also declined more than 20 per cent against a basket of major currencies since 2001, partly due to concerns about the widening US trade deficit. Suweidi said the central bank would wait for a dip in the euro before making purchases to diversify its currency reserves, which stood at $23bn in December. Normally you wait for a downtrend to buy and catch it as it goes up, he said, adding that the UAE central bank favoured investing in US corporate bonds rather than government Treasuries because of their relatively attractive yield. He said no decision had been made yet on gold purchases. Suweidi said the central bank was still committed to diversifying it reserves and that the banks board would meet later this month to consider the timing of the switch. Markets have become particularly sensitive to any suggestion that central banks, especially those in countries with large current account surpluses, are moving some of their holdings away from dollars into euros. Central banks worldwide hold more than $4tr in total reserves. Gulf Arab central banks account for only about 10 per cent of the regions foreign-exchange reserves, but they offer a rare window on official thinking in the Gulf, where vast surpluses of oil cash are controlled by secretive government-linked investment arms. The state-owned Abu Dhabi Investment Authority, for example, manages between $450bn and $500bn, according to an estimate by Standard Chartered. Other Gulf Arab central banks are studying the euros growing allure as a reserve currency. A Qatar central bank official said in April the bank was buying euros, which could eventually account for up to 40 per cent of reserves. But the Saudi Arabian Monetary Agency (Sama), the regions wealthiest central bank, reiterated that there would be no change in its reserve policy. Complete archives at http://www.sitbot.net/ Please let us stay on topic and be civil. OM
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