Kuwait drops dollar peg in blow to Gulf currency union

[TexasLawyer]

Source: AGENCIES

Kuwait drops dollar peg in blow to Gulf currency union

MONDAY, MAY 21, 2007 01:06:36 AM

KUWAIT: Kuwait unshackled its dinar from the tumbling US dollar on Sunday and switched the exchange rate mechanism to a basket of currencies, throwing plans for currency union with other Gulf Arab oil producers into disarray.

Kuwait’s central bank, which battled speculators for weeks to defend the peg, said the dollar’s slide against other currencies had forced it to break ranks with fellow Gulf states to contain inflation from the rising cost of some imports.

The move stunned Gulf currency markets and volumes dried up. The impact would be clearer on Monday when global markets open, said Steve Brice, chief Middle East economist at Standard Chartered Bank in Dubai. Oman and Bahrain, the two smallest Gulf economies, and Saudi Arabia, the largest Arab economy, said they planned to stand by their pegs.

<snip>

“The massive decline in the dollar’s exchange rate against main currencies... has contributed to the increase in local inflation rates and this step is part of the central bank’s efforts to curb inflationary pressure,” Sheikh Salem Abdul-Aziz al-Sabah said.

<snip>


Read more: http://economictimes.indiatimes.com/News/International__Business/Kuwait_drops_dollar_peg_in_blow_to_Gulf_currency_union/articleshow/2063278.cms

[TexasLawyer]

1. Dollar buying ever less of world's goods

From the May 21, 2007 edition
Dollar buying ever less of world's goods

The dollar has fallen 5 percent against the euro and the pound
so far this year, the equivalent of a 20 percent annual decline.
By Ron Scherer | Staff writer of The Christian Science Monitor

New York - It's like a summer movie: the incredible shrinking dollar. Since the beginning of the year, the buck has shrunk 5 percent – the equivalent of a 20 percent annual decline – compared with the pound and the euro.

<snip>

Nearly every day, the US imports about $3.5 billion more than it exports. At the same time, the European Central Bank is in the process of raising interest rates, while the US Federal Reserve is holding rates steady and may even lower them later this year. "This makes buying US securities not as attractive," says Mr. Bryson.

<snip>

[Rydz777]

3. I've been going to Poland a lot in the last ten years, and

for a long time you got 4 zloty to the dollar. Now you are lucky to get 2.75. And try going to Britain where the pound now costs $ 2.

We import virtually everything we use now (even food if you want Chilean grapes in the winter) and we are going to find with the sinking dollar that those imports are going to get more and more expensive. We have just been told, however, that our inflation rate is stable - IF you exclude energy and food.

[annabanana]

7. "if you exclude energy and food"

I remember when they took those items out of the inflation figures.... All I remember thinking is "well, now those figures are useless..."

[dipsydoodle]

2. Strike up the band to the tune of

Dolly Grey : Goodbye dollar we must leave you.........

[Javaman]

13. Or the old time favorite...

"we're out the money, we're out the money, we haven't got a dime to help us get along!"

[Robbien]

4. How the heck did little Kuwait find the nerve to do this?

I guess they were between a rock and a hard place.

[annabanana]

5. I really don't know what this means... but I suspect that

it will not be good for us.

[Theres-a]

9. I suspect you're right. nt

[leveymg]

10. It means the Saudis and Gulf bankers are throwing W under the bus

They've been propping-up the U.S.-based partner banks and energy companies since the 2000-01 dot.com blowout and the post-9/11 collapse of other US equities and debt markets.

This is a EXPENSIVE vote of no-confidence in the Bush-Cheney regime. This move will cost hundreds of billions, but it's cheap really, considering the cost of carrying BushCo this far.

The Bush-Cheney regime have only a few more months until they're gone. But, then what do we do about a collapsing economy?

[rosesaylavee]

12. Didn't Venezuala, North Korea and Iran

all threaten to stop using the US dollar to trade with in 2000? Isn't that one of the big reasons why they were dubbed 'evil' by *co?

[leveymg]

21. Actually, threats to/NK and Iran predate the petrodollars issue

I recall that BushCo tried to overthrow Chavez in a '02 coup, and that predated Chavez's demand for oil payments in Euros.

[MUAD_DIB]

24. Are you sure that BushCo will leave under their own free will.

All it takes is one more MIHOP and bingo: martial law.

[Javaman]

15. Once upon a time the US dollar was based upon the gold standard...

that was replaced by oil. All oil, until a little while ago was traded in US dollars.

What the various nations in the middle east are finding now is that the US dollar is a fiat economy at best (not worth the paper it's printed on), lots of dollars but nothing to back up other than oil.

So when a nation chooses to drop the US dollar as it's means of trading oil, the dollar loses value.

Let's take a trip in the way back machine, shall we?

Iraq 1990. Saddam is pissed off at Kuwait. they are slant drilling into Iraqi fields. Saddam petitions the UN to tell the to stop. Basically, everyone (read the US) tells him to take a walk. Saddam masses his troops along Kuwait. Also, the bigger issue, he makes plans to get off the US dollar and start trading oil in another currency.

Now george the first can't have Iraq trading oil in something other then the US dollar (notice how I didn't say a thing about saddam invading kuwait), it's then that george the first gets pissed and starts the saber rattling. The rest is history.

Fast forward to today. Iran has established a borche, which is a fancy term for, you got it, trading oil in another currency other than the US dollar. The US is all pissed off and it calling Iran a "rogue" nation that wants WMD's(catch all phrase for any nation that pisses off the US)and wants to bomb them back to the fertile crescent.

Notice if you will how Europe has been pretty luke warm to the idea and are looking for a diplomatic out for the whole mess. Why? because Iran has publicly stated that they want to trade oil in Euros. Surprise surprise. However, why are the russians so chummy with Iran? Well, now because, oil doesn't have to be traded in only one currency. They have also made overtures in trading some of their oil in rubles.

Whoops! Now is it clear why there is suddenly all this talk about a new "cold war"?

The old adage still applies, "follow the money".

[magellan]

6. Ruh-roh. Will this affect oil prices?

[Miss Chybil]

8. It's seems the dollar is another victim of our current leadership's reputation.

Reputation means a lot - even if you are a piece of paper.

[InkAddict]

11. How ungrateful!

Their memory of how the US saved their oil wells from the evil Saddam's slant drilling operations didn't last long.:shrug:

[dbackjon]

14. Actually, it was the Kuwaiti's slant drilling, stealing Iraq's oil

That started the Gulf War.

We should have let Saddam keep the ungrateful bastards.

[Roland99]

27. Was that ever proven or was that just Saddam's claim?

[dbackjon]

28. I will have to look up the sources, but Kuwait admited as much.

The Kuwaiti Royal Family is pretty slimy.

[roamer65]

16. Hong Kong needs to do the same as China and Kuwait.

Drop the dollar peg and adopt the same basket of currencies as China. The HK dollar really needs to keep pace with the Renminbi, more so than the US dollar.

[sutz12]

17. And so it begins....

As I recall, they stopped publishing the M3 figures a couple of years ago, which IIRC is the amount of real money in circulation. Sounds like a recipe for runaway inflation right around the corner.

Why do you think they are making so many 'commemorative' coins lately, the quarters and now the dollars? They are making money so fast that they need to ensure that big quantities of it are taken out of circulation by collectors.

I think I'll be living under a bridge this time next year. :shrug:

[TexasLawyer]

18. UAE next??!?

May 21, 2007 10:34 AM ET
Dollar's Woes Eyed in Persian Gulf


All Associated Press NewsDUBAI, United Arab Emirates (AP) -

With Kuwait abandoning its currency's link to the dollar, the United Arab Emirates may be the next Gulf state to cut its reliance on the sagging U.S. currency -- a move that could hasten the greenback's decline.

On Sunday, Kuwait's Central Bank governor, Sheik Salem Abdul Aziz al Sabah, removed the Kuwaiti dinar's peg to the dollar and linked it instead to a basket of currencies. The Kuwait Central Bank believes that by raising the value of the dinar and, later, adjusting interest rates, it can curb inflation that has hurt the economy of the oil-rich emirate.

<snip>


http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=AP&Date=20070521&ID=6930774

[sutz12]

20. Gee, how convenient does that Halliburton move look now? nt

[roamer65]

19. Looks like the Bank of Canada has thrown in the towel...

and decided to stop defending the US dollar.

A .92+ cent loonie this morning.

http://www.xe.com

I hope the loonie goes well beyond parity.:evilgrin:

[leveymg]

22. How long until we take Toronto?

Unless, of course, they use their WMDs. ;-) :nuke: :wow:

[roamer65]

23. ...or how long until Canada owns us?

A strong Canadian dollar will mean they can buy US assets at a much lower cost.

[MUAD_DIB]

25. So when you get one of those Canadian quarters that never work in

the vending machines hold onto it.

I thought that I would never see the day when the Canadian matched the Dollar, but then again I never expected the US
to be ruled by a dictator either.

[roamer65]

26. Literally, most Canadian coins ARE worth more than face value.

The Canadian 5 cent from 1955 to 1981, the 10 cent and 25c from 1968 to 2000 are made of pure nickel. They are worth more than their face value due to soaring nickel prices. The Royal Canadian Mint is actively withdrawing the coins from circulation and melting them.

[JCMach1]

29. Inflation is quite high in the Gulf Countries... the sinking dollar

really kills salaries and profits in relation to this.

I curse every day that my salary wasn't pegged to the euro.