Bahrain sticks with the dollar

MANAMA, Bahrain — Bahrain will continue to peg its currency to the U.S. dollar despite the economic uncertainty created by the recent downgrade of U.S. debt, the kingdom’s finance minister told The Washington Times.

The Bahraini dinar, fixed at 0.376 dinars to the dollar, could suffer because of the Federal Reserve’s weak-dollar policies, but Sheik Ahmed bin Mohammed Al Khalifa said he believes that the link between the currencies remains in Bahrain’s long-term interest.

“It is something that we look at, we follow up on, and so on, but we believe the relationship with the U.S. dollar is a very long-term one, and over the long term, it has worked very well for us,” he said.

Sheik Al Khalifa’s comments came after the central bank of the nearby United Arab Emirates announced on Tuesday that it, too, would keep its currency pegged to the dollar.

The Bahraini economy, which has weathered the global financial crisis and its own domestic political crisis, is tied to the United States on many other levels.

The kingdom has had a free-trade agreement with the U.S. since 2006, and two-way trade last year reached $1.67 billion, making the U.S. Bahrain’s largest trading partner next to neighboring ally Saudi Arabia.

The United States is also consistently one of the largest providers of foreign investment to Bahrain, while the presence of the Navy’s all-important 5th Fleet also boosts the local economy.

“What is important for us is to see that that relationship continues to grow,” Sheik Al Khalifa said. “In any economic cycle, you expect the ups and downs and the challenges countries face from time to time. What is important is how they deal with that.”

“There are a lot of issues to be dealt with,” he added, “but I think the world is dealing with them very seriously.”

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