Gulf countries should discuss whether to shift their currency peg to a basket of international currencies instead of the dollar, the economy minister of the UAE was quoted as saying on Thursday.   

Gulf officials have previously denied any risks to pegs in the region, which relies heavily on imports, as a result of the weak US currency.

Sultan Saeed Al-Mansouri told the Arabic language Alsharq Al-Awsat newspaper that shifting pegs towards a currency basket would help Gulf countries protect their currencies and investments.   

Policymakers in the world's top crude exporting region have long said that the dollar pegs they have serve their hydrocarbon-heavy economies well as long as inflation stays under control.

Inflation has started to pick up as key Gulf economies recover, recently hitting 18-month highs in the UAE and Kuwait, but it remains far below 2008 record peaks.

Kuwait is the only country in the region tracking a basket of currencies, having broken ranks in 2007 with other Gulf states whose currencies are pegged to the dollar.

Al-Mansouri said the US economy was "a strong and growing economy despite that it passes through a specific time that will affect the value of the dollar in one way or another".

Some economists have warned the Federal Reserve's latest bid to revive the US economy with a $600 billion liquidity injection could fuel inflation and put the credibility of the dollar at risk.

The US economy continued its slow recovery in recent weeks, the Fed said on Wednesday, with pockets of strength in manufacturing offset by "depressed" housing markets and employers still reluctant to hire in significant numbers.

The UAE's economy is expected to grow by 3 to 3.5 percent in 2011, Al-Mansouri said last week.

He also said the UAE's gross domestic product (GDP) should reach 1 trillion dirhams ($270 billion) in 2010. Nominal GDP had fallen to 914.3 billion dirhams in 2009 from 934.3 billion dirhams in 2008 after the global slowdown. - Reuters