Published: Tuesday, 6 Oct 2009 | 3:53 AM ET

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A newspaper report that Gulf Arab states are in secret talks to replace the U.S. dollar in the trading of oil is wrong, Saudi Arabia's central bank chief said on Tuesday.

Asked by reporters about the story in Britain's The Independent, Muhammad al-Jasser said: "Absolutely incorrect." Asked whether Saudi Arabia was in such talks, he replied: "Absolutely not." Asked whether Saudi Arabia was committed to the dollar, he said: "You asked the question, I answered it. You asked about the story."

The Independent quoted unidentified sources as saying Gulf Arab states were in secret talks with Russia, China, Japan and France to replace the U.S. dollar with a basket of currencies in the trading of oil.

The U.S. dollar had eased after the report, written by Middle East correspondent Robert Fisk and monitored on The Independent's Web site. It cited unidentified sources in Gulf Arab states and Chinese banking sources in Hong Kong.

Fisk said the proposal was for trade in crude oil to move over nine years to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, the United Arab Emirates, Kuwait and Qatar.

"Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars," said the report. It added that France had also been involved in the talks.

Most Gulf Arab states have pegged their currencies to the dollar.

The Independent said U.S. authorities were aware that the meetings had taken place but had not discovered the details and were "sure to fight this international cabal".

The issue of shifting oil trade away from the U.S. dollar has been raised occasionally in recent years, but analysts and experts say it is unlikely to occur any time soon.

"I don't think we will see much concrete actions coming out of such discussions because even when the dollar is weak, it doesn't mean that commodities are undervalued," said David Moore, commodities analyst at the Commonwealth Bank of Australia.

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"In fact, when the dollar weakens, commodities prices tend to increase by a higher ratio."

Iran began settling most of its crude oil exports in non-dollar currencies, primarily the euro, several years ago, but the actual price for its oil is still set in dollar terms.

The U.S. dollar dipped in the wake of the report, with analysts cautious about reading too much into it, particularly given the nine-year timeframe.

"This looks to be a very long-term thing with a few hurdles to cross," said Jonathan Cavenagh, currency analyst at Westpac in Sydney. "Foremost, China needs to be more flexible with its currency."

"Still, this is U.S. dollar negative news which is moving markets and shows that central banks not just in Asia are looking to diversify away from the US dollar," he added.

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