Gulf countries, including Saudi Arabia, approve new currency

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pinecarr's picture
pinecarr
Status: Diamond Member (Offline)
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Posts: 2244
Gulf countries, including Saudi Arabia, approve new currency

I just came across a couple of very interesting articles on the Gulf countries, including Saudi Arabia, announcing that they will break from their dollar pegs, and start their own currency in 2009.  The question regarding whether the new currency will be at all backed by gold is as of yet unanswered.  First, an article from Seeking Alpha, http://seekingalpha.com/article/112731-will-the-new-gcc-single-currency-include-gold, dated December 31, 2008, entitled "Will the New GCC Currency Include Gold?":

"Cooperation Council leaders yesterday concluded their 29th annual summit meeting in Muscat, Oman with a final approval for the creation of a single currency for the six-nation economic bloc, still targeted for 2010.

Saudi Arabia is the largest economy in the GCC and boasts substantial gold reserves. But whether gold will be included in the currency basket has not yet been decided.

Golden opportunity

GCC assistant secretary-general Mohammad Al Mazroui told Gulf News: ‘We first have to decide on the location of the Central Bank, then the Central Bank and Monetary Council will have to decide on the gold reserves for the Central Bank’.

The creation of the GCC single currency - likely to be known as the Khaleeji which means Gulf in Arabic - is a major gold event for two reasons.

First, the breaking of their dollar pegs by the Gulf Arab nations is clearly dollar negative. Secondly, any inclusion of gold either as a part of the monetary basket, or in the reserves of the new GCC Central Bank will create additional demand for the precious metal.

2009 deadline

The project is gathering pace, and no lesser a figure than Saudi Arabia’s King Abdullah has directed that GCC economic integration committees speed up their work and complete the whole exercise by September 2009.

It is only a couple of months since a group of Saudi businessmen allegedly bought $3.5 billion worth of gold, believed to be the largest ever single transaction for the precious metal. Perhaps in 2009 it will be gold rather than local currencies which become of interest to speculators about monetary reform in the GCC.

Gulf countries are keen to break away from the link with the US dollar because it ties them to inappropriate monetary policies that exaggerate the boom-to-bust cycle in their economies."

pinecarr's picture
pinecarr
Status: Diamond Member (Offline)
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Posts: 2244
Re: Gulf countries, including Saudi Arabia, approve new ...

...And here's another article dicsussing the original Seeking Alpha article, on Market Skeptics, "Gulf Arab Nations Break Their Dollar Pegs", at http://www.marketskeptics.com/2009/01/gulf-arab-nations-break-their-dollar.html .  The author, Eric deCarbonnel, makes the following comment:

"...My reaction: Wow, Arab countries have announced that in 2010 they will stop selling oil for US dollars. Even more interesting is the posibility of the Khaleeji [the new Gulf Cooperation Council (CGG) currency] being backed by gold. Could this foreshadow a move a move back to the gold standard?

In any case, this development, together with  China making the Yuan an international currency, effectively end the dollar's role as the world's reserve currency. Soon, the US will be buying its oil in gold/Khaleeji and its consumer goods in yuan. The US dollar is now living on borrowed time.

Think about it: If you can't buy consumer goods or oil with dollars, what good are they as a reserve currency?"

At the end of another very interesting article on Market Skeptics, "Ten Major Threats Facing the Dollar in 2009", at http://www.marketskeptics.com/2009/01/ten-major-threats-facing-dollar.html, the author, Eric deCarbonnel, makes the following comment that is relevant to our topic here:

"...As to your question Dave about, "Why are all the parties still playing along?"

The parties aren't playing along. China is internationalizing its currency. Arab nations are organizing their own (possibly gold-backed) currency. Europe already as the euro.

I have a feeling we are headed towards a world dominated by these three currencies:

1) The euro, backed by Germany's strong manufacturing base
2) The yuan, backed by China's strong manufacturing base
3) The Khaleeji backed by arab oil and gold"

  Things are sure getting interesting (scary)!

 

EndGamePlayer's picture
EndGamePlayer
Status: Platinum Member (Offline)
Joined: Sep 2 2008
Posts: 546
Re: Gulf countries, including Saudi Arabia, approve new ...

Good post pinecarr!

You know what this means? . . .it means my tinfoil hat doesn't see the future - and once the gas price goes up - so will inflation (like it did last summer). I was hoping they would keep the price down through 09. 

Back to the drawing board and re-writing the

EndGamePlayer's picture
EndGamePlayer
Status: Platinum Member (Offline)
Joined: Sep 2 2008
Posts: 546
Re: Gulf countries, including Saudi Arabia, approve new ...

On the bright side- if this helps deflate the dollar - then more export $ales of whatever goods we still make.

I'm not a gold speculator (I don't gamble) but I think you are spot on - this could set the gold prices to where I think they should have been for the last 6 months.

pinecarr's picture
pinecarr
Status: Diamond Member (Offline)
Joined: Apr 13 2008
Posts: 2244
Re: Gulf countries, including Saudi Arabia, approve new ...

Thanks EndGamePlayer.  yeah, it seemed like important news to me too!

I try to pay attention to what is going on with the US dollar, as well as what is going on with other currencies since they are inter-related.  Much of my retirement savings fund is locked into US Treasuries, so I want to have as good an assessment as I can get on the state of the dollar to make decisions impacting my family's future.  E.g., will there be a point when the US Dollar is so imminently at risk that I'm better off quitting my job, even though that means losing my pension, just to save what I can of my work-related retirement savings?  At least that way I could put what I didn't lose to taxes and penalties to purchase things of real value, for sustainable living ,while dollars still have some perceived value. 

Anyhow, although some writers have predicted that the collapse of the US dollar for a while now, a lot of things I've read over the past couple of years have downplayed that risk because ithe dollar is the world's reserve currency, and the currency oil is priced in.  Those analysts thought  there was nothing else realistically capable of taking the dollar's place.  What the articles I referenced above tell me is that that may all be changing.  Other countries are now building a currency-scaffolding around their assets, so that when /if the dollar crashes, their wealth has a chance of not falling with it. 

The hard thing is knowing the timing of things!  Right now it seems like quitting my job and losing my income is the higher risk.  But I am concerned that risk assessment could change (and may be changing) real quickly!  The closer the yuan and Khaleeji come to becoming true international currencies, the more I see the risk to the dollar increasing.  

DurangoKid's picture
DurangoKid
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Joined: Oct 25 2008
Posts: 174
Re: Gulf countries, including Saudi Arabia, approve new ...

What does the Federal Reserve have to say about all this?  Are they quietly flop-sweating in a broom closet?  Are they afraid to address the issue and give it some credibility?  Or will the GCC now become the latest Axis of Evil?  If the US has to buy oil from the GCC in this new currency, it will likely switch to Africa, South America, Mexico, Canada, Russia, et al for all of its oil consumption?  We don't get the lion's share of our oil from the GCC anyway.  About 12%?  I can't believe the Fed would cut these countries loose like that.  Then again, what choice does it have?  It let all those mortgage backed securities loose on the world and now it (we) have to face the music.

SagerXX's picture
SagerXX
Status: Diamond Member (Offline)
Joined: Feb 11 2009
Posts: 2237
Re: Gulf countries, including Saudi Arabia, approve new ...

Holy guacamole!  This is not good news for the US dollar...

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