The US dollar is expected to fall again by 2010 triggering up inflation rates in the Gulf states, a top Qatar Central Bank official said in Doha yesterday.
“This will happen by 2010-end when the global financial crisis is likely to reach its end in the US,” said Khaled Rashed al-Khater, director of the department of research and monetary policy at QCB.
About the repercussions of the global financial crisis on the US, the official predicted that the dollar will lose its position as the international reserve currency in the long-run, saying that the US share of the world output would decline in the coming years.
“There will be a shift of weight of world demand for oil from the US to China, India, and other countries. The current rally of the US dollar is temporary. It is expected to depreciate in the medium-run by no less than 20%,” he said.
Qatar’s proven resilient banking system amid the current financial turmoil as well as its “credible and independent” monetary policy make it “very eligible” to host the planned common Gulf central bank, the senior official said.
Speaking at a lecture yesterday at the Georgetown University School of Foreign Service in Qatar, al-Khater said that Qatar’s independent monetary policy as well as its resilient banking system made it very eligible to be the hosting country of the Gulf central bank.
“We are very eligible. We have a credible monetary policy. We conducted many researches on monetary union and inflation in the Gulf states. At a time when all the Gulf states followed the US Fed cutting the interest, Qatar was the only country among the group which did not follow the US Fed. We also do not have a problem with our banking system or the availability of liquidity,” al-Khater said.
Gulf leaders are due to meet in Saudi Arabia next month to decide on the location of the common central bank which is expected to administer the planned monetary union which will culminate in the single Gulf currency.
However, al-Khater ruled out the possibility that the Gulf states would be able to meet the 2010 deadline for the single currency.
“It is unlikely or impossible to launch the single currency in 2010. The plans for the monetary union have started but still need more effort to meet the criteria,” he said.
Asked whether the QCB would interfere in the local banks policies regarding overseas investment, the official stressed that the central bank would not impose any restrictions on local banks about their investment choices, saying that such decisions were up to the banks.
“This is free economy and free market. Of course there are regulations that banks should abide by, but we do not interfere in their investment policies,” he added.
The expert also admitted that there was a decline in the cash inflow for Qatar, saying that this was due to shortage of liquidity in the entire world.
About Qatar’s monetary policy, al-Khater hailed it as “credible and independent”, saying that Qatar’s banking sector was among the least affected and the most resilient in the region during the current global financial turmoil.
“When the market bubbles burst in the region in 2006, Qatar was the least affected among its neighbours. Thanks to QCB’s pre-emptive conservative credit policy during the lending boom in 2002-03, our banking system is still the most resilient in the region,” he added.
“If we do not have an independent and credible monetary policy, we would have to follow the recent interest cut made by the Fed since we are pegged to the US dollar, but we did not,” he maintained.
He added that QCB was still ready to extend liquidity in the banking system via its collateralised and refinance-standing facilities, and direct deposit at the micro-level.
Al-Khater, who was briefing the Georgetown University School of Foreign Services on his views about the implications of the global crisis as well as Qatar’s monetary policy, also said that the implications of the financial crisis would require the Gulf states to reconsider their dollar peg arrangements in the future.
Original Article from: Gulf Times