(Updates with economist’s comment in fourth paragraph.)
Nov. 29 (Bloomberg) -- The United Arab Emirates is investing in U.S. Treasuries again and affirmed its policy of keeping the dirham pegged to the dollar.
“Now we do invest in U.S. Treasuries because the circumstances changed and we changed our decision,” the U.A.E. central bank governor, Sultan Nasser al-Suwaidi, told reporters in Abu Dhabi today. The dollar peg “has served our economy, there are up and downs, but these ups and downs will not change the situation.”
In July, the U.A.E central bank said it didn’t hold Treasuries or other financial instruments issued by the U.S. government due to their “very low” return. The country, like Saudi Arabia and others in the Persian Gulf, is building up foreign-currency reserves with oil trading at an average of $95 a barrel this year.
“Most of the revenues for the region are in U.S. dollars, and their imports are in U.S. dollars, so in that sense parking money in U.S. assets hasn’t lost its rationale,” Jarmo Kotilaine, chief economist at Jeddah-based National Commercial Bank, said in an interview today. “Investors are becoming nervous about the euro. They are looking at the alternative, and that leaves the U.S. and frankly not much else, in terms of deep liquidity and easily tradable markets.”
Yields on 10-year U.S. debt have dropped below 2 percent, from a 2011 high of 3.74 percent in February.
Oil exporters raised their combined ownership of U.S. government debt by 6.7 percent from a year earlier to $230 billion in September, according to the Treasury’s website. Foreign assets held by Saudi Arabia’s central bank rose 21 percent from a year earlier to 1.95 trillion riyals in October.
The U.A.E. and Saudi Arabia are among five members of the Gulf Cooperation Council that keep their currencies pegged to the dollar. Kuwait links its dinar to a currency basket.
--With assistance from Dana El Baltaji in Dubai, Saudi Arabia. Editors: Heather Langan, Ben Holland, Karl Maier.
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