Kuwait drops dollar peg - will Qatar do likewise?
From the Gulf Times 21 May 2007:
Kuwait drops peg to dollar
Published: Monday, 21 May, 2007, 07:54 AM Doha Time
KUWAIT CITY: Kuwait dropped its dinar’s peg to the dollar yesterday, throwing into disarray plans to create by 2010 a single currency in the GCC region.
Delays to a monetary union among the Gulf oil exporting states, including Qatar, were a principal reason for the switch that now links the Kuwaiti dinar to a basket of international currencies, the Kuwaiti government said.
“(Monetary union) was delayed … and therefore we went back on this decision today,” Deputy Prime Minister Faisal al-Hajji said, referring to Kuwait’s decision to adopt the dollar peg in 2003 to prepare for the single currency.
Kuwait, also switched the exchange rate mechanism to a basket of currencies, had been battling speculators for weeks to defend the peg.
Another reason was the dollar’s slide against other currencies Kuwait said that forced it to break ranks with fellow Gulf states to contain inflation from the rising cost of some imports.
Is Qatar likely to drop the Qatari Riyal-Dollar peg?
If it does, would this be a good thing or a bad thing for the different nationalities on Qatar Living?
If it does, how is that likely to affect salaries? My contract gives a QAR and a USD amount. Which will I receive?
Hi
In the past 2 years rents has gone like rockets, we shifted 3 homes now. More than 50% of our earnings we pay rent now. Also the prices of essential commodities are rising day by day. Finding it very much difficult to live. And above all the exchange rate also is like this now. Thinking to go bak to native. It is impossible to save something here.
sunitha
But at the end of the day , my salary will still stay the same!So you wont gain anything
Hello, does anyone know typical home-loan interest rates in (i) Qatar and (ii) the US?
Theory says they should be similar (due to the fixed FX). I am wondering what reality says.
Regards
By example ...
TODAY
Salary = 10,000 QR
Expenses = 5,000 QR
Savings = 5,000 QR / 3.63 = 1,377 USD sent home
AFTER FLOTATION
Salary = 10,000 QR (typo corrected)
Expenses = 5,500 QR *some things are bound to go up in price
Savings = 4,500 QR / 2.63 = 1,711 USD sent home
You could use other figures, but the calculation is valid for whichever currency you choose. It is likely that if you're earning QR then you'll be able to send home about 25% more cash after flotation.
There are TWO groups of private people who will not benefit;
a) People earning foreign currency here - for example American servicemen ... they'll have less QR to spend at the weekend (who know - mebbe there'll be standing room in Rydges again?!)
b) People investing in the Pearl, etc. from abroad - as they'll have to spend more of their domestic income to buy here. This may have a (small) effect on real estate values here (it would probably have more effect in Dubai)
AFTER FLOATATION
Salary = 5,000 QR ??
Noble-Man,
you are correct. My bad!
***The biggest risk in life, is not taking one!***
Don Masri,
Refer to your comments on Third para :
"when the exchange rate rises say (ex 1USD = 2.8QR) then in this case (if you are paid in QR) the amount of USDs sent back home will decrease by 22% (taking that the current 1USD = 3.63QR)"
Should it be INCREASE by 22 %, instead of DECREASE ??
5 yrs ago ... 1 GBP = 5,something QR, and now 1 GBP = 7, something QR.
Is it better to send money this month, or I have to wait for 2 months for the rates to be back to at least at 1QR=13php. As of yesterday, the exchange rate is 1QR:12.5php.
Or is it better to exchange my QRs to USD.
I don't send a huge amount to Phils. So most of my earnings are still in my bank account here. A li'l bit frustrating indeed.
Taking into account domestic inflation, what is the QR worth now as compared to a year ago? Surely, if inflation is high, then the exchange rate should re-adjust to compensate - or is that an over simplification? My point is, are we now getting less money to send back home to the UK than this time last year?
to answer your question regarding what will happen if the QR in no longer pegged to the USD one thing here needs to be emphasized upon: it is the fact that the QR is under valued.
if the CBQ (Central Bank of Qatar) decides to float the QR, then in this case and taking into account the points that I have mentioned in my first comment the QR will fluctuate for a short period of time but with massive deviations due to the FX brokers world wide and domestically (demand and supply). after that phase is over the QR will settle on a certain exchange rate (which I believe will be higher than the current exchange rate)
when the exchange rate rises say (ex 1USD = 2.8QR) then in this case (if you are paid in QR) the amount of USDs sent back home will decrease by 22% (taking that the current 1USD = 3.63QR)
Hope that I was able to explain it correctly.
***The biggest risk in life, is not taking one!***
I always know that! since I've known you here in QL!
Before you embark on a journey of revenge, dig 2 graves...
Me. happy go lucky.
Serious is 50/50. if people take their problems seriously! then they become problematic, then they start to have migraine then they worry every single thing, then what's next? 50/50 :) hi! hi! hi!
Before you embark on a journey of revenge, dig 2 graves...
Fight Fight Fight Ding! Ding! Ding! don't give up
Related to rates! so people don't take rates problem seriously. no one tells anybody what to comment and where to go!
Before you embark on a journey of revenge, dig 2 graves...
RedPope, yes, I'm aware of the RMB (Chinese yuan) pegging against the dollar and how the Americans are continually moaning about it. The problem is that the Americans don't really have the financial strength to stand up to China, since China holds a heck of a lot of American debt in the form of bonds.
The Chinese could -- if they so chose -- crash the dollar and virtually destroy the American economy if they wanted to pull the plug.
The Americans just want to have their cake and eat it (just as most other consumers do). They like the cheap Chinese imports but then they don't like the fact that their own exports are relatively expensive. American consumers can't have both cheap imports and a competitive manufacturing industry, the sums don't add up.
Mystica, this is a thread about currency and exchange rates, something that affect people's standard of living.
Do people have to turn every single thread into a really puerile playground with silly offensive racially stereotyped 'jokes'.
Some people want to have some serious discussion on Qatar Living. Some people don't. For the latter there are jokes threads. Please use them.
One day a Japanese went for a travel in UK. he went to a money changer and change his yen to dollar, that day 1 dollar is 121.424 yen.
the next day he went and change again 1 dollar to 123.424 yen,
the next day 120.424 so the Japanese guy asked
Why? day befole yestelday is diffelent late flom yestelday today is wolst cheapel! why?
The counter says it's called fluctuation Sir "FLUCTUATION"
Japanese guy heard it as "F**CK TO ASIANS
Oh yeah yeah "FLUCK TO YOU ALL EULOPEANS
Before you embark on a journey of revenge, dig 2 graves...
I have never, ever been able to get my head around currency exchange/currency fluctuations, I just have a mental block on exchange rates for some reason.
If the Qatari Riyal rises against the pound, what will happen?
At the moment, according to xe.com:
1 QAR = 0.139183 GBP 1 GBP = 7.18478 QAR
If QAR rises, will Brits receive more or less GBP to the QAR?
as I remember, the Kuwaiti dinar was always linked to a 'basket' of currencies...which explained why it was worth more than the Saudi Rial. They only tried the dollar peg to fit in with the mooted "common GCC currency" [ inshállah!] .
De-linked from the dollar, the Qatari Rial would rise against the Pound and Euro, against which it is being held down by the weakness of the American economy, and its poor balance of payments, war expenses, etc.
This is interesting, kuwait made this move very confidently, even with our assets in natural resources i dont think any GCC country should make such a move because any instability will cause too much fluctuation in the currency thats teh last thing we need when the cost of living has risen so dramatically in the past years in doha.
The last thing we need is for the currency to be worth less at any given time.
Since the QR is pegged to the US$, interest rates in Qatar must mirror US rates (otherwise there would be a risk-free arbitrage opportunity to borrow there and deposit here, or vice versa).
By the way that's not theory, it apparently actually is QCB policy: http://www.qcb.gov.qa/QCBInterestRates.asp
I'm no economist but it strikes me that with the Qatar economy booming, the budget in multiples of surplus, and inflation well above desired levels, there would be quite some pressure to increase the value of the QR against the US$.
Especially given the US economy is going through exactly the opposite cycle.
Don't worry, What goes around comes around when ti comes to the dollar and Euro.
You guys ever thought about the chinese??????? They are getting real strong and stronger every day, Yes they are peg to the dollar.....
Emancipate yourselves from mental slavery
None but ourselves can free our minds..
Qatar will drop the peg the dollar before July. That's when all the rich Qatari's go to Europe for the Summer so it benefits them.Otherwise we're screwed for another year if they come back from Europe and it hasn't been dropped yet.
That is what the Governor of the CBK said a few weeks back too.
***The biggest risk in life, is not taking one!***
Governor of Central Bank yesterday said Qatar has no intention of dropping US Dollar peg.
The reason that the rest of the Gulf Countries' Currencies' are still pegged to the US Dollar has more to do with politics rather than economics. Personally, I believe that the rest of the gulf countries will follow in the foot steps of Kuwait, it's just a matter of time until they do.
Regarding the second question, I think that it would be hard to tell due to the fact that the exchange rate for a currency is dependent on a number of factors: 1- The purchasing power parity (PPP). The PPP derives from the assumption that in the world there exists the "law of one price". This law states that identical goods should be sold at identical prices. This is far from a law (by the way), it is mainly an assumption. 2- The balance of payments. 3- Like in the Kuwaiti case where the KD is not longer pegged to the USD, rather it is pegged to a basket of foreign currencies. 4- Demand and supply in international exchange markets. Several factors influence the supply of, and demand for a currency. If interest rates are higher in Qatar than in other countries, investors may choose to invest in Qatar, increasing demand for the QR, provided that the expected rate of inflation is not higher in Qatar than among our trading partners.
In this context it is quite a controversial topic to determine whether it would prove to be either a good thing or a bad thing for the expats in Qatar who are being paid in the local currency here.
As long as the CBQ is not going to float the currency then the fluctuations that are going to occur to the QR are going to be minor and very short termed due to is being pegged to a currency basket rather than free floating it. In the case where the CBQ would decide to float the currency at this time, there would be some major changes the exchange rates for the QR due to the fact that there is a major trade surplus for Qatar. The exchange rate of the QR would be much higher than the current exchange rate. In conclusion, the QR is undervalued.
For the expats that are being paid in QR this means good news, for the expats being paid in USD, it doesn't look very good.
I hope that I made a relevant and correct analysis here.
***The biggest risk in life, is not taking one!***
I read about three weeks ago that Qatar are to drop the dollar also.
Don't know any more.