http://www.businessweek.com/ap/financialnews/D8VF9ARG0.htmKuwait's decision to stop pegging its currency to the dollar last year hasn't completely tamed inflation, but experts say many of its oil-rich neighbors will follow, desperate to fight inflation.
Oil is priced in dollars on the world market, but many Gulf countries rely on government-subsidized imports priced in euros and other currencies that have been rising against the greenback. This relationship has pushed up the price of imports, a dilemma that could get worse as fears of a recession in the U.S. and related interest rate cuts continue to push down the dollar. Raising their interest rates would have little effect on the Gulf states' inflation rates while their currencies remain pegged to the dollar.
. . .
Alan Greenspan, former chairman of the U.S. Federal Reserve, said at an economic forum in Saudi Arabia last month that de-pegging from the dollar would significantly help Gulf states battle rising inflation in the short term. Merrill Lynch predicted Qatar and the United Arab Emirates, suffering from inflation rates of 14 percent and 10 percent, would revalue their currencies relative to the dollar or de-peg. As with Kuwait's decision, a move by Qatar or the UAE would likely anger their U.S. ally.
. . .
Reyadh Faras, an economics professor at Kuwait University, disagreed, saying Kuwait's decision to abandon the dollar was significant and similar decisions by even larger countries could seriously erode the dollar's value. "If large countries like Saudi (Arabia) take the same step, its psychological effect will precede its actual one and it could lead to losses for the dollar," he said.No worries. Alan has got our back . .
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