Gulf Cooperation Council (GCC) countries are expected to keep their currencies pegged to the US dollar due to their massive financial assets, a Saudi bank has said.
Currency pegs remain under pressure in the region compared to historical standards, particularly the Saudi riyal’s peg to the dollar, the Saudi American Bank (Samba) said in its monthly bulletin.
It said pressure on the riyal has abated from its early-year intensity, but has not gone away, adding that speculators are wondering whether local banks have the capacity to absorb sufficient amounts of government debt to relieve pressure on international reserves.
“Our view is that the most intensive period of government debt financing has probably passed, and with fiscal buffers still sizeable, the peg is expected to remain in place….
more generally, GCC governments are now more willing to draw on some of their large external savings held in sovereign wealth funds.”
GCC countries have pegged their currencies to the US dollar for a long time except Kuwait, whose currency the dinar is linked to a basket of major world currencies.