Flip through the latest issue of Gulf Weekly.
It is now becoming increasingly evident that barring central banks, wealth funds and big interests who have invested in dollar assets, no one else wants to lie tied to the flagging greenback.
No sooner did former Federal Reserve chairman Alan Greenspan say that near-record Gulf inflation would fall "significantly" were the oil producers to drop their dollar pegs, than the UAE Central Bank governor, Nasser Al Suweidi, shot his rejoinder saying the dollar is on its way to strengthening, and it is not logical to speak now of de-pegging the dirham from the dollar.
Al Suweidi argues the peg greatly benefited the local economy, and helped achieve good rates of growth in the industrial and tourism sectors as well as attract foreign investments.
It had also helped member states of the Gulf Co-operation Council prepare for monetary union planned for 2010.
Arguments apart, Greenspan is not a person whose views can be treated as illogical. As chairman of the Federal Reserve, Greenspan was one of the most powerful financial men in America from 1987 until his retirement in 2006. As chairman, Greenspan was largely responsible for directing US national monetary policy and he is often credited with keeping inflation at historically low levels.
Greenspan contends that the pegs restrict the Gulf's ability to fight inflation by forcing them to shadow US monetary policy at a time when the Fed is cutting rates to ward off recession and Gulf economies are surging on a near five-fold jump in oil prices since 2002.
While advocating free float for the Gulf currencies Greenspan notes that in the short term free floating will not fully dissipate inflationary pressure, although it would significantly do so.
There are notable others too who favour de-pegging. Qatar, battling the region's highest inflation, is studying revaluing its riyal among options to combat inflation that hit 13.74 per cent in the fourth quarter, says Prime Minister Shaikh Hamad bin Jassim bin Jabr Al Thani.
The exchange rate contributes to about 40 per cent of inflation in Qatar, where the riyal is 30 per cent undervalued, Shaikh Hamad says.
The Saudi Central Bank governor Hamad Saud Al Sayyari says floating the Saudi riyal would not be appropriate for an economy that relies on oil exports.
Floating is beneficial when the economy and exports are diverse. As for the kingdom it remains reliant on the export of a single commodity, Al Sayyari says.
In the UAE, top businessmen have publicly come against the dollar peg. Business leaders including Khalaf Al Habtoor, chairman of conglomerate Al Habtoor Group, and Dubai Properties chief executive Mohammed Binbrek made calls for an end to the dollar peg in December.
The UAE's booming economy is being held back by its currency peg to the weak US dollar, says the Asia editor of The Economist magazine.
Pam Woodall says it was no longer economically viable for the UAE and other Gulf states to continue with their dollar peg as the US economy was spiralling into recession.
All countries pegged to the dollar are suffering rising inflation. Abu Dhabi is growing at an amazing rate, it does not make economic sense for booming economies to peg their currencies to a country that is about to go into recession, Woodall says.
Woodall predicts the issue of the dollar peg would continue to dog Gulf states over the next year as further rate cuts by the US Federal Reserve fuelled inflationary pressure.
The Fed has cut interest rates by 225 basis points to three per cent since September 18 to help ward off recession.
Gulf states have been forced to mirror to deter bets on an appreciation of their dollar-pegged currencies at a time when their economies are booming and inflation is at record levels.
As the debate rages on whether to peg or de-peg, a recent statement by Saudi Minister of State Abdullah Alireza sums up the thinking of the Gulf states who are staunch allies of the US. "With $400 billion to $500 billion tied up in the US currency, uncoupling the currencies would be like Saudi Arabia shooting itself in the foot," Alireza says.
