The United Arab Emirates' central bank could cut its dollar holdings by anything up to nearly a half and is looking at the yen, euro and sterling as alternatives, the central bank governor said on Monday.
The Gulf Arab oil exporter's central bank decided earlier this year to convert 10 percent of its largely dollar-denominated foreign exchange reserves into euros and gold. Governor Sultan Nasser al-Suweidi said the reserves were worth more than $25 billion.
"It is our investment policy to diversify. We are still waiting for the appropriate time," Suweidi told reporters after a meeting of regional central bankers in the UAE capital, Abu Dhabi, adding the bank was considering the euro, yen and sterling as alternatives.
"The majority of reserves should be in dollars. Anywhere between 50 and 90 percent," he said, later explaining that there was unlikely to be a substantial shift away from the US currency. "The dollar is a very important currency and we won't deviate much from it. Right now we are looking at 90 percent."
Meanwhile Syria's central bank governor said in London that the country planned to remove its currency from its US dollar peg and link it to the International Monetary Fund's special drawing rights (SDR) in the first half of 2007.
"At present the Syrian pound is pegged to the dollar at 52 pounds to the dollar," Adib Mayaleh, Governor of the Central Bank of Syria, told Reuters. The SDR consists of 44 percent US dollars, 34 percent euros, and 11 percent each of yen and the British pound.
The UAE's Suweidi said earlier this year that the central bank would wait for a dip in the euro before making purchases to diversify its currency. The dollar accounts for around 98 percent of the UAE central bank's reserves, the central bank has said.
"In terms of pure foreign exchange reserve movement they are not going to have a big impact on the market," said Adrian Schmidt, currency strategist at RBS Financial Markets in London. Gulf central banks account for only about 10 percent of the region's foreign exchange reserves, but they offer a rare window on official thinking in the Gulf, where vast surpluses of oil cash are controlled by secretive state investment arms.
The state-owned Abu Dhabi Investment Authority, for example, manages between $450 billion and $500 billion, according to an estimate by Standard Chartered.
Other Gulf Arab central banks are studying the euro's growing allure as a reserve currency. A Qatar central bank official said in April the bank was buying euros, which could eventually account for up to 40 percent of reserves.
Kuwait's central bank governor said on Monday he was concerned about the dollar's decline but would leave the composition of the bank's reserves unchanged.