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Wednesday, January 24, 2007

Will Kuwait Tell Uncle Sam: "Drop Dead!"

Remember how we saved Kuwait's keester back in Gulf War I? Well, now they're considering abandoning their currency's dollar peg to the US dollar because the greenback keeps slumping lower. That’s according to Bader al-Humaidhi, Kuwait's finance minister, who talked to reporters today at the World Economic Forum in Davos, Switzerland.

Kuwait is one of six Gulf Arab states that pegged their currencies to the US dollar in 2003 in anticipation of joining a common currency in 2010. ALL those Gulf currencies are now undervalued compared to the greenback.

Dorothee Gasser, a Middle East and Africa economist at ING Bank NV in London, told Bloomberg News today that she didn’t think any other Gulf countries would adjust their currency pegs, but added: “What we are likely to see is that they are going to convert some of their reserves into gold. It's bearish for the dollar.''

You can read the Bloomberg story by CLICKING HERE.

Why is this important? Probably the most important pillar supporting the US dollar as the world's reserve currency is that OPEC prices oil in dollars. If they stop doing that -- maybe moving to pricing oil in a basket of currencies -- the dollar is going to get a lot more wobbly in a hurry.


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