DOHA (AFP) — US Treasury Secretary Henry Paulson said on Sunday that high inflation in the oil-rich Gulf region was not caused by the peg to the stumbling dollar, but any decision on the link was up to individual governments.
Speaking to reporters in Qatar on the second leg of a Gulf tour, Paulson also said skyrocketing oil prices were a question of supply and demand.
"I haven't heard anyone saying to me that the peg is causing a problem. You can look at Kuwait, they depegged to a basket of currencies (but) they have the same inflation... problem," he said.
Inflation is "driven by food prices and (cost of) building materials," Paulson said, adding that "the peg has served the region well for a long time."
Paulson reiterated remarks he made in Saudi Arabia on Saturday that "currency decisions are sovereign decisions by individual countries."
Five of the Gulf Cooperation Council 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 in May last year 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, who will visit the UAE on Monday, said his talks in the region also covered investments in the United States and the impact of high oil prices.
"It is (a question of) supply and demand," he said of record high crude prices, while calling for "increased investments around the world" in oil, gas and alternative energy sources.
Investments in the United States from the region doubled in the past two years, he said.
Paulson said his talks also touched on keeping the financial system "secure from sponsors of terror" with a focus on Iran, which Washington accuses of acting as a conduit for "terrorist financing" and suspects it seeks to acquire nuclear weapons.
"There is plenty of evidence that many banks no longer are willing to do business with Iran," he said.
"This is one way of sending a message to Iran which says that if you want to be a rogue state, continue as you are. But if you want to be part of the legitimate financial system... then don't isolate yourself through your actions."
Copyright © 2010 AFP. All rights reserved. More »
