JEDDAH, Saudi Arabia (AFP) — US Treasury Secretary Henry Paulson said on Saturday that the link of Gulf currencies to the dollar is a sovereign matter, as he started a Gulf tour in the Red Sea city of Jeddah.
"This is a sovereign decision for Saudi Arabia and the rest of the region's states," Paulson said following talks with Saudi officials, according to SPA state news agency, which quoted him in Arabic.
"The (future of the) link between these currencies and the dollar rests in the hands of these governments," SPA reported him saying at a press conference with his Saudi counterpart, Ibrahim al-Assaf.
For his part, the Saudi finance minister reiterated the Saudi position of rejecting any de-pegging of the riyal from the weakening dollar.
Five of the Gulf Cooperation Council's member states -- Bahrain, Oman, Qatar, Saudi Arabia and the United Arab Emirates -- have so far shrugged off calls for an adjustment to their exchange rate regime, saying it would harm their economies.
But Kuwait decided last May to part ways with the dollar link, pegging its dinar to a basket of currencies. The dinar has since appreciated by some 7.7 percent against the greenback.
The policy of pegging currencies to the dollar enhanced monetary stability and benefited domestic economies when the US and Gulf economies were heading in the same direction.
Now, Gulf economies are growing at a rapid pace, spurred by an unprecedented oil windfall. In contrast, the US economy is on the verge of recession as a result of the weak dollar, high energy prices and a liquidity crunch.
Paulson's will also visit Qatar and the UAE.
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