Saudi Arabia and its US dollar peg dilemma

This Article was Published in The National The fall in oil prices has strained Arabian Gulf countries’ cur­rency policy, and increased the cost of carrying a US dollar peg. Most GCC countries are pegged to the US dollar to avoid currency fluctuation and eliminate uncertainties in international transactions (Kuwait is pegged to a basket of currencies dominated by the US dollar). This comes at the expense of monetary policy flexibility. Stable domestic currency and a fixed exchange rate imply that traders do not have to face currency risks, and therefore will be more willing to invest and facilitate trade. Since oil is the chief commodity in the GCC, and the oil price is fixed in dollars, any

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