US Treasury Secretary Henry Paulson and Saudi Arabian Finance Minister Ibrahim Al-Assaf agreed that the Kingdom benefits from keeping its currency pegged to the dollar. The riyal's peg “has served this country and the region well,'' Paulson said at a joint press conference at the Jeddah Conference Palace on Saturday. Saudi Finance Minister Ibrahim Al-Assaf, who joined Paulson in the news conference, reaffirmed his committment to the dollar peg. “I totally agree with Secretary Paulson,'' Al-Assaf said. “As we have said many times, we have no intention of de-pegging or of revaluation.'' Asked about the struggling greenback, Paulson said “we know a strong dollar is in our nation's interest.” Asked about increasing talk that Gulf countries might decide to remove their currency pegs to the dollar, given the effects of its plunge, Paulson signaled the US would not try to deter them. On a visit to Saudi Arabia, Qatar and the United Arab Emirates, said the decision on whether to maintain the currency's dollar peg is entirely up to that country's government. “That is a sovereign decision ... the dollar peg, I think, has served this country (Saudi Arabia) and this region well. That speaks for itself.” He repeated his familiar refrain that the US economy has its ups and downs and is in a tough period now, but he is bullish on the long term outlook. As usual, he said those long-term fundamentals will eventually be reflected in the US currency. Paulson is getting an update on the fixed exchange rates retained by most nations in the Middle East on his four-day trip to the region. Gulf officials in April agreed to strengthen efforts to establish a currency union by 2010, diminishing speculation of a quick change to the dollar pegs. The Treasury chief is touting the US as an investment destination for Gulf funds flush with $4 trillion thanks to oil prices that have doubled in the past year. He is aiming to persuade Middle East investors to continue putting money in the US as American banks seek to raise capital, while encouraging Gulf countries to avoid political objectives in investing through government-run sovereign wealth funds. “The major purpose of my visit trip is open investment,'' Paulson said. “The issue that I'm most concerned about, looking globally, is a protectionist sentiment around the world at a time when it makes no sense.'' While the Gulf nations' oil exports are priced in dollars, the soaring price of crude has largely compensated them for the dollar's declining international purchasing power. In recent weeks, currency analysts have seen Treasury statements about the pegs as giving a “green light” for de-pegging without objection from Washington. On the question of oil's price itself, Al-Assaf said “as our oil minister has indicated many times, we are for stability in the oil markets. We don't like extreme volatility.” “This situation doesn't lend itself to quick easy fixes,” Paulson said of the oil price run-up. There is “no doubt” high prices are a burden on the global economy, he said, and he had asked the Kingdom for a higher production cap. In his view, the current high price is a supply and demand problem, not a problem of excessive speculation. The Treasury chief said investing in developing better oil production technology as well as alternative energy sources is necessary as oil prices continue to soar. “There's no doubt that the current prices are a burden on the world,'' Paulson said. “This situation doesn't lend itself to quick, easy fixes.'' Paulson also reiterated his belief in a “strong dollar,'' and said the currency will benefit over time from the US economy, which is in “a tough time'' right now. “A strong currency, a strong dollar, is very much in our nation's interest,'' he said. “I believe the long-term economic fundamentals are going to be reflected in our currency.''
