RIYADH – China's revaluation of the yuan increases the possibility of  the re-alignment of the Saudi Riyal  to a weak U.S. dollar especially while trading links with Asia and Europe continue to grow.

Saudi Arabia and many Gulf countries have pegged their currency to the dollar for years. Weakness in recent years of the dollar and the growth in Asian and European imports have cut into the purchasing power of the Gulf countries, whose export earnings from oil are also denominated in dollars.

The value of Gulf Arab imports from China, which were negligible just a decade ago, grew last year to $14.5 billion, or 8.5 percent of total imports.

While record oil prices may mask the impact of costlier goods, economists say the case for linking to a basket of currencies instead of the dollar – just like China – is gaining ground.

"There is a gathering debate about this," said Daniel Hanna, an economist with Standard Chartered bank in Dubai.

"The majority of the Gulf trade is with Asia and the European Union. You can make a case that the currency peg should reflect that better, especially since China will be their fastest growing partner," he said.

One vocal advocate of swift change, National Commercial Bank senior economist Nahed Taher, says Saudi Arabia cannot afford to wait until 2010 to loosen ties between the riyal (SAR-) and the dollar which have been fixed since 1987.

Taher has called for a managed float of the riyal against a basket of currencies, within a 5 percent band, arguing that costlier imports are partly responsible for pushing annual inflation up to 6 percent for the last two years.