Gulf Arab states like Oman, which mostly peg their currencies to the US dollar, are major holders of US assets, with oil — priced in dollars — their main source of revenue.

A downgrade of the United States' credit rating by Standard & Poor's in August prompted China, the top foreign holder of US government debt, to call for a new stable reserve currency. 

"We are still keeping our investment in US Treasuries because no one else is pulling out their investments," Al-Zadjali said on the sidelines of a financial forum.

He said there would be no change in the central bank's reserve policy and it would maintain its small gold holding. 

Its foreign assets including gold, stood at 4.9 billion rials ($12.8 billion) in August, 3.5 percent down from a year ago, data showed on Monday.  

Al-Zadjali's comments back up those of a senior Omani government official, who told Reuters in the immediate aftermath of the US rating cut that the sultanate would stick with US government paper.

Central banks around the world have held US Treasuries for their liquidity and safe-haven status. 

Indebted European banks have been turning to the oil wealthy Gulf region for funding as they struggle to cope with the euro zone debt crisis but Al-Zadjali said the regulator had urged local banks to be cautious.

"We have instructed local banks not to expose themselves to toxic European debts. That is why they are not affected by the European credit crisis," he said.

The economy of the small non-OPEC oil producer, which saw social unrest earlier this year, is likely to grow by 5 percent in 2011, Al-Zadjali also said, with inflation seen at 4 percent.

Earlier on Monday, Oman's finance minister, Darwish Al-Balushi, said at the same forum that he expected growth for this year to be 5.5 percent, with the forecast for 2012 at 5 percent.

Analysts polled by Reuters in September forecast 4.0 percent growth in 2011 and 4.2 percent next year after an estimated 4.1 percent in 2010.

Inflation hit a 29-month high of 5.3 percent on an annual basis in August driven by food prices and an unexpected jump in personal care items, Finance Ministry data showed on Monday. The poll forecast average inflation of 3.9 percent for 2011.