Common GCC currency ‘should avoid dollar-peg’
by mahmood on 09/05/06 at 11:59 am · email · print
A common GCC currency should not be pegged to the dollar but to a basket of different currencies, says a prominent foreign exchange strategist. BNP Paribas foreign exchange strategy global head Hans Redeker said that a peg to the dollar, which he expects to be a weak currency in the long term, would leave the Gulf economies too exposed.
“The regions with which the Gulf does the most business have changed in the last 10 to 15 years,” he said.
“The region currently does more business with Europe and Asia than it does with the US.”
Mr Redeker said that the Gulf would have a better cushion if it pegged itself to a basket of major currencies from around the world, making it easier for it to adjust itself to major movements in the market.
“If there is volatility in the dollar, the region’s central bank will have to make a lot of noise to adjust, but with a basket adjustments can be made to the weight of various currencies within it which wouldn’t cause much of a stir,” he said.
“A basket of currencies would help the region avoid a volatile currency market, such as the one we are experiencing now.”
Mr Redeker was speaking at a conference for clients held by BNP Paribas Bahrain at the Ritz-Carlton Bahrain Hotel and Spa yesterday.
Also speaking at the event was Bahrain-based BNP Paribas European corporate group fixed income sales regional head Shiva Subramaniam.
London-based Mr Redeker is a well-known face to viewers of business news programmes on BBC World, CNN, Bloomberg and other news channels on which he regularly provides forecasts.
With BNP Paribas, he leads a research team that is divided among London, Paris, Singapore and New York.
Mr Redeker believes that the US dollar will continue to weaken against the Euro for various reasons, including the fact that real wages in the US are on the decline.
“Wages are increasing but not as fast as inflation. Without an increase in real wages, the economy loses one of its main pillars for growth,” he said.
In Europe Mr Redeker expects the Euro to remain strong, but predicts an uncertain future for some European countries in the long term.
“I have a prediction which some may find surprising. I believe that there may be two Euros in the future, a normal Euro and what I call a ‘Euro deluxe’.”
Mr Redeker said that this could happen towards the end of the decade as the pace of growth of different countries in Europe diverge.
“Countries like Italy, Portugal and Greece seem unable to make the structural reforms necessary to keep up with other neighbours such as Germany, which is once again becoming the engine of growth for Europe,” he continued.
“So the Euro may remain for the countries of Southern Europe while other countries such as Germany, France, Slovenia, the Balkans and others adopt a new currency.”
GDN :: Tariq Khonji :: 9 May ’06
