Central banks in the Middle East are reaching a similar point in their battle with financial markets for control over monetary policy.
By the end of November, the UAE dirham had hit a 17-year high against the dollar, while the Saudi riyal was at a 21-year high and the Qatari riyal at a five-year high.
The volume of investments that have been made in the wake of the slightest rumour show how sensitive the markets are.
It also puts the region’s central banks in a difficult position. With most of their assets and receipts based in dollars, the central banks are trying to hold on to their dollar pegs, but the policy is becoming less credible each day.
Almost everyone assumes a revaluation is imminent. But in an effort to hold their ground, the GCC central banks have instead cut interest rates to the same as or below US rates, to remove any profit speculators might make when they switch out of the dollar and into Gulf currencies.
However, speculators are not that easily put off. Kuwait tried exactly the same policy before it revalued the dinar, and the obvious parallels have merely fuelled the guessing game.
The dollar peg, which was intended to add clarity and credibility to Gulf monetary policy, is being slowly dismantled, and with it the credibility of the central banks.
If the GCC dollar pegs are revalued now, it risks signalling to the markets that they can dictate policy. But if the pegs remain in place, speculation will simply continue. Further US rate cuts will put more pressure on the GCC to act.
The Gulf should move to a basket of currencies. Even if it appears to be bowing to market pressure, there is no longer any realistic alternative.