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Should the Qatari Riyal be pegged to the American Dollar - Research Paper Example

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Should the Qatari Riyal be pegged to the American Dollar

However, the dollar peg and the country’s open capital account had resulted in high inflation levels in 2008 generally caused by three issues: (1) Higher worldwide food and commodity prices — Qatar imports majority of its food and commodities; (2) The economy faced housing capacity restraints as domestic expenditures amplified, housing being a non-tradable good; (3) The decline of the currency coupled with its tie to the US dollar had worsened inflationary strains. Inflation averaged approximately 15 percent in 2008, i.e. elevated a great deal more than in other Gulf countries. In 2009, global prices of food and commodities have considerably reduced and housing costs and leases dropped as well, in spite of the continuing immigrant influx. Inflation pressures worsened as the depreciation in the American dollar persisted. Regardless of this, Qatar still continued to be pegged to the US dollar (Matabadal). Marios Maratheftis, Standard Chartered Bank’s Head of Research of the Middle East, North Africa & Pakistan asserted: "Qatar, like other Gulf countries, has a strong relationship with the US and they are not about to abandon a friend in need" (Bakr). Qatar government officials believed that the declining US economy did not affect the country’s economy because their chief trading partners are not in the US but mostly in Asia and Europe. But the dollar depreciation indeed caused Qatar’s inflation rate to increase by 15% (Bakr). As the dollar continued to devalue, Qatar and other GCC countries

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maintained their investments in huge reserves of a declining currency as they are pegged to the dollar (“To Peg or Not to Peg”). With the ongoing inflation, Qatar is pressured to tackle the market dilemma while still keeping alliance with the US, thus the decision to consider revaluing its Qatari riyal by 20% to fight inflation and to stifle anticipations on inflation. What raises inflation is speculation about it, thus it needs to be controlled in careful revaluation. Creating a capital market would use up Qatar’s excess liquidity and would improve the country’s economic intensification (Bakr). The International Monetary Fund (IMF) encouraged Qatari officials to prioritize projects on the country’s infrastructure to alleviate commodity and food supply blockages and high inflation. The IMF likewise emphasized the necessity for sustained attempts to augment energy filtration and absorption capacities and expand the country’s economy aside from the production of exportation of hydrocarbons (“Qatar Economy and Trade”). The current US economic chaos had revived rumor on whether the Qatar Central Bank (QCB) would think of dropping from the dollar peg. While some Gulf Cooperation Council countries had showed support for the peg, others were uncertain. The unpegging debates increased momentum during the time when the GCC universal currency progress was initiated (“US Dollar under Riyal Pressure”). Since the introduction of the euro, the American dollar destabilized and devaluated by 24 percent. In the Doha summit, panic heaved among some members of the Organization of Petroleum Exporting Countries (OPEC), economic professionals and global investors that triggered a common petition to peg their currencies to different currencies other than the US dollar and to price their oil and energy products in different currenc
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[Name] [Professor] [Class/Course] [Date] Should the Qatari Riyal be pegged to the American Dollar? Since 1980, the Qatari Riyal has been pegged to the US dollar at 3.64. The dollar peg has provided Qatar a stable macro-economic policy and a corner stone for economic strength and security…
Should the Qatari Riyal be pegged to the American Dollar
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