One big question is whether the United States of Petrodollars really holds petro-“dollars” or has moved more of its funds into petro-“euros” or other alternatives to the dollar. My guess is that the Saudis – who keep most of their spare cash on deposit at SAMA – still hold mostly dollars, but that some of the smaller oil sheikdom's investment authorities haven’t been quite as faithful to the dollar. That is just a guess though.
The Asian oil exporters -- TICspeak for the Gulf -- really did put a lot of funds in the US in January (around $11b, counting both short and long-term flows), but that big influx came after several sub-par months. And generally speaking, the Gulf uses London custodians and private fund managers and offshore accounts so very little of its surplus tends to show up in the US data.Other than that, I don’t have much to add to Serhan Cevik’s analysis. I share his doubts about the wisdom of the GCC’s plans to continue to peg to the dollar in the run-up to their monetary union (link here, RGE subscription required). Pegging to the dollar over the next few years seems to be sure recipe for a lot of inflation, as the dollar’s slide drives up import prices even as the oil states are spending more of the surplus. Some are spending more on domestic social programs and salaries, others on mega-investment projects. No matter. Both imply less fiscal sterilization and more inflation.
And I agree with Cevik's argument for more exchange rate flexibility: “a more flexible exchange-rate regime would allow these economies to manage the volatility of oil prices better.” Put a bit differently, I don’t think dollar pegs make any more sense for a group of oil exporting economies than for an individual oil exporting economy.
And given how jealously individual oil sheiks guard their oil – and in Dubai, real estate -- revenues, I don’t quite see how the GCC really meets some of the other criteria for monetary union either.