In Mideast, Paulson Offers Reassurances on Dollar - 060308 NY Times

http://www.nytimes.com/2008/06/03/business/03treasury.html?pagewanted=print

June 3, 2008
In Mideast, Paulson Offers Reassurances on Dollar
By REUTERS
ABU DHABI (Reuters) — Treasury Secretary Henry M. Paulson Jr. defended the dollar’s status as the world’s reserve currency and said on Monday that its recent decline was only a small factor behind a surge in oil prices.

“The U.S. dollar has been the world’s reserve currency since World War II and there is a good reason for that,” Mr. Paulson told a business group in the United Arab Emirates.

“The United States has the largest, most open economy in the world, and our capital markets are the deepest and most liquid.”

His comments marked a slight strengthening of his recent language on the dollar and could resonate with gulf oil producing states that are struggling with soaring inflation and might be re-evaluating their dollar currency pegs.

Mr. Paulson is on the final day of a four-day tour to Saudi Arabia, Qatar and the United Arab Emirates to discuss currency and economic issues with regional leaders and reassure them that the United States remains receptive to their investments.

In his remarks, he pledged to deal with problems in the American economy that have hurt the dollar’s value. “I am committed to promoting policies that enhance the underlying competitiveness of the U.S. economy and ensure that the dollar remains the world’s reserve currency,” he said.

He said these include advocating open investment and trade and working to stave off a recession and return capital markets to health. He said the dollar’s value would ultimately be reflected in strong long-term fundamentals, which “compare favorably to any advanced economy in the world.”

Mr. Paulson said speculation and dollar weakness were not to blame for soaring oil prices and the only way to relieve oil market pressure was to better balance supply and demand.

He called for more international investment in both oil production and alternative fuels, while “market distorting” fuel-price subsidies in many countries should be abandoned.

Mr. Paulson also said opening up the gulf economies to foreign investment and trade would make them more prosperous and stable.

“Remaining closed to investment will have the opposite effect, by inhibiting growth and magnifying domestic economic vulnerabilities,” he said.