UAE central bank chief stands behind dollar peg

[November 29, 2011]  ABU DHABI, United Arab Emirates (AP) -- The UAE's Central Bank governor said Tuesday that the oil-rich Gulf nation is committed to keeping its currency pegged to the U.S. dollar and is reinvesting in U.S. Treasury bills.

Sultan Nasser al-Suwaidi also voiced confidence in the long-term stability of the euro even as fears mount that Europe's debt crisis could sink the 17-nation currency.

Al-Suwaidi, speaking to reporters in Abu Dhabi, called the European Union a "very, very important bloc of countries" and predicted "everything will be fine in Europe." In Brussels, eurozone finance ministers planned an emergency meeting to try to protect the currency through closer fiscal and political integration.

The exchange rate of the UAE's currency, the dirham, is linked to the greenback. But some analysts have questioned the value of the keeping the policy as the U.S. economic struggles and the dollar remains weak.

Al-Suwaidi countered that the dollar link has served the Emirates well, adding that "we are very much with the peg."

"There is absolutely no change ... The fixed peg has served our economy for many years," he said.

The central bank chief also noted that the UAE has begun buying up U.S. Treasurys after shunning them earlier this year, but is not as heavily invested as it once was.

The bank in August surprised investors by saying it no longer had any U.S. securities on its books because of the low return offered. Al-Suwaidi, however, didn't say how much of the bank's assets were invested in US T-bills.

"It's fluctuating. It depends on the yield. But it's not how it was," he said.

Saif Hadef al-Shamsi, assistant governor for monetary policy and financial stability affairs, added that the Central Bank's reserves were also invested in Japanese government securities.

U.S.-allied Gulf nations have traditionally been large buyers of U.S. government debt, which has long been viewed as among the world's safest and most liquid assets.

Asked about the effect of sanctions ordered by the Arab League against Syria, al-Suwaidi said the Central Bank will comply if ordered to by the UAE government but has not yet received guidance on what measures to implement.

"There are procedural issues. They have to communicate that with us," he said.

The Arab League on Sunday approved sweeping sanctions against the regime of Bashar Assad to seek an end to the violence against opposition groups. Syria's foreign minister called the Arab move "a declaration of economic war" and warned of retaliation.

[Associated Press; By ADAM SCHRECK]

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