MORE MIDDLE-EASTERN OIL PRODUCING COUNTRIES PARE DOLLAR HOLDINGS, DELINK DOLLAR FROM LOCAL CURRENCIES

In a post from September 20th, the Author described Saudi Arabia’s decision not to cut its interest rates in response to the September 18th Fed rate cut. Analysts interpreted this decision as a gradual delinking of its currency with the dollar and a fear of inflationary pressure from the dollar interest rate pegging.

Kuwait had previously delinked its interest rates from the dollar in May.

The title of this post is “US DOLLAR FACES FLIGHT IN WAKE OF FED RATE CUT.”

Qatar, another gulf-region oil-producing state, said its $50 billion sovereign wealth fund has cut its exposure to the dollar by more than half to about 40 per cent of its portfolio, according to an article from Gulfnews.com, entitled “Gulf Funds Drift Away from Dollar”.

Dubai: Asset diversification by the Gulf sovereign wealth funds and the possibility that the Organisation of Petroleum Exporting Countries (Opec) will change the pricing of oil from the dollar to another currency could mean more trouble for the dollar.

The dollar has been losing its charm as a reserve currency due to its persistent weakness against a host of other international currencies…

Amid the dollar's free fall following the half per cent interest rate cut in September, Qatar last week said its $50 billion sovereign wealth fund has cut its exposure to the dollar by more than half to about 40 per cent of its portfolio.

"Qatar has admitted that its investment fund has been diversifying their portfolios to compensate for the decline of the dollar. It would be naive to think that other Gulf funds are loyal to the dollar at the cost of heavy portfolio losses," said a Dubai-based investment banker.

IN COME OIL EUROS, OUT GO OIL DOLLARS.

There are strong indications that oil producers will move from dollar pricing of oil to a more stable currency, such as the Euro.

Currency market analysts believe that the gulf sovereign funds' gradual move away from the dollar is a precursor to Opec opting for a different currency in which to price oil.

"If the dollar were to lose its lustre as a reserve currency this could prove disruptive to the global financial system," Merrill Lynch said in a research note.

"Pricing oil in dollars might have made sense when there was a paucity of other relatively stable currencies and when the Middle East imported more from the US - but not any-more," said an analyst.

Some analysts also believe that a threat by Iraq to price its oil in Euros was a contributing factor to the invasion and occupation of Iraq by the US.

The US Dollar is still at near record lows versus the Euro and the Canadian dollar.

BRETTON WOODS MAY SOON BE JUST ANOTHER MOUNTAIN RESORT IN NEW HAMPSHIRE, ANOTHER FORGOTTEN WAY STATION ON THE ROAD TO THE DESERT OF THE REAL!