UAE turns back on dollar in foreign reserves shake-up

[Clara T]

UAE turns back on dollar in foreign reserves shake-up
By Ambrose Evans-Pritchard (Filed: 14/03/2006)

The United Arab Emirates is planning to switch 10pc of its foreign reserves from dollars to euros in the first sign of fall-out from Washington's snub to Dubai Ports World last week. Sultan bin Nasser Al Suwaidi, the governor of UAE's central bank, said the plan was designed to achieve a better balance in the $19.1bn reserves of the oil-rich Gulf federation, almost entirely held in dollars.

"This policy initiative has nothing to do with the controversy over DP World's bid for P&O operations in the US," he said. In the same breath, however, he denounced the move by the US Congress to block the Dubai group from taking control of six American ports on security grounds, warning it would drive capital away.

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The UAE has been a close ally of Washington in the fight against terrorism, so the shrill tone on Capitol Hill - bordering on anti-Arab hysteria - has been deeply wounding. There are fears it could lead to a withdrawal of petrodollar funds from the US, much like the Saudi-driven capital flight after the terrorist attacks of 9/11.

"Dubai's difficulties are going to cause Arab countries to invest less in the United States," said Mohab Kamel, a trader at Kara Energy in Geneva. "The kick in the teeth by Washington is not reassuring for Kuwait and Saudi Arabia, which have a more fundamentalist attitude," he said.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/03/14/cnuae14.xml&menuId=242&sSheet=/money/2006/03/14/ixcity.html

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