In a recent report, I wrote of how China was experiencing severe problems as a result of having its currency pegged to a basket of foreign currencies largely dominated by the US Dollar.

This week I find myself in San Francisco at the Hard Assets Conference. After a quirky breakfast at Lori’s Diner - a 1950’s styled eatery, I brought myself back to reality with a short walk uphill (is everything uphill in this town?) to Borders bookstore where I bought the Financial Times Weekend Edition.

A chart buried on page 18 caught my caffeine-heightened attention and I have re-produced this chart for you above. Arab Gulf nations like Saudi Arabia, Kuwait, Bahrain, Qatar, UAE, and Oman have all pegged their currency to the US Dollar. And rightly so, given the oil trade that these nations conduct in US Dollars. Problem is, if I peg my currency to yours, I have to follow your Money Supply policies. If you ramp your money supply up in an unbridled fashion, then I must do likewise.