AP
Rasheed Abou-Alsamh
The eternal question of whether to peg the Saudi riyal to the US dollar (and all the other Gulf currencies which are also pegged) or not has become a hot topic this year because of sky high oil prices and the resulting inflation that it is causing.
Saudi Arabia has seen record inflation this year, which is estimated to be around 10.8 per cent, with the UAE at 11.1 per cent, Oman at 12.4 per cent and Qatar at 13.8 per cent. While the price of petrol in these oil producers has not increased, the prices of all imported goods have gone up. Inflation has increased the prices of food, construction materials, medicine, clothes, and cars. That combined with an extremely weak dollar, and the fact that the majority of the Gulf Cooperation Council nations’ imports are from the European Union with its strong euro, means prices have skyrocketed in a short period of time. Price increases of 15 to 25 per cent for some goods are common, and that in a space of just a few months.
Martin Fieldstein, a professor of economics at Harvard University, jumped into the debate last week with his opinion piece in the Financial Times in which he argued that Saudi Arabia should depeg from the dollar, and that the Saudi economy would not collapse if it did so.