JEDDAH, 12 January 2005 — Hamad Al-Sayari, the governor of the Saudi Arabian Monetary Agency (SAMA), said there has been no shift in world currency reserves from dollars into euros. He also said that the European single currency would play a greater role in global reserves in the future.
Unconfirmed reports of funds being moved from dollars into euros have contributed to the greenback’s decline over the past three years. A renewed wave of selling pushed the dollar to record lows of $1.3667 against the euro in December last year. The dollar also fell against the euro yesterday. The euro rose to 1.3166 dollars from 1.3088 late on Monday in New York.
“I don’t believe that there is a new shift (into euros) but the market has been expecting a dollar change (in values) due to the US deficits,” Al-Sayari said yesterday in Basel, Switzerland, while attending a meeting of central bank governors.
Since the euro’s launch in 1999, the world’s central banks with currency assets of over $3 trillion have slowly been buying euros to diversify their dollar-denominated reserves, spread risks and enhance returns. The Saudi riyal, pegged to the US dollar, is stable despite the continued decline of the American currency, Al-Sayari said.
“The fall in dollar prices will not affect the actual value of riyal or inflationary rates,” the governor said. “I don’t think the falling dollar will have any big impact as most of our international trade is done in dollars,” Al-Watan Arabic daily quoted him as saying recently.
The riyal has been pegged to the dollar since 1986 at the rate of 3.75 riyals per dollar. The central bank’s currency defense is solidly backed by substantial foreign exchange reserves which have increased drastically from $8.62 billion in 1995 to $22.62 billion by 2003.
Saudi Arabia and its five partners in the Gulf Cooperation Council plan to unify their dollar-pegged currencies by 2010 and the United Arab Emirates has suggested floating the single currency a few years later.
Data from the International Monetary Fund showed the euro’s share in official FX reserves rose to 19.7 percent in 2003, up from 13.5 percent in 1999. The dollar remains dominant with its share at 63.8 percent.
The dollar, highly liquid and used internationally for trade, has long been the world’s preferred reserve currency. It is backed by the world’s largest economy and is involved in about 9 out of 10 trades made on the foreign exchange.
In an interview with Reuters this week, Al-Sayari said it did not matter which currency oil was priced in, adding he wanted price stability. A possible change to pricing oil in euros instead of dollars would be considered a vote of confidence for the single currency.
There has also been speculation involving billions of dollars of Middle East oil money that would traditionally have gone into dollars. That money is now being used closer to home due in part to diversification and relatively low US yields. Al-Sayari said: “What we know is that there has been an increase in domestic liquidity. We think it is less money going out rather than more money coming in from Saudi investors.”