pegging to a currency and ripple effects

Is there something inherently wrong with a developing country pegging their currency to the dollar? -- a question regarding the Thai Baht.

In the absence of a gold dollar, every country is faced with the problem of how to manage its own money when the Fed is mismanaging ours. The Fed mismanages the dollar when it permits the dollar price of gold to move from its optimum point, which we reckon to be $350 these days. The Bank of Thailand has to consider several things that are going on at the time of the mismanagement, especially which direction the dollar/gold rate has swung. If the dollar is inflating and the dollar gold price rising, the baht will be dragged with it. If the dollar gold price is falling, deflating, the baht gold price will fall too. These inflationary/deflationary impulses will then ripple through the entire price structure of goods and services, but with different effects as they impact tax policies and at different rates of transmission in the two countries. (link to a lengthier discussion of the topic)

Why is this interesting?

U.S now has a $20 billion deal with Saudi Arabia to provide some high powered weaponry. reasons given (yahoo news) were; one: to bolster defenses against threats from U.S. adversary Iran and two: to muster support in this oil-rich kingdom for a long-stalled Mideast peace agreement.

some recent facts. all OPEC countries are pegging their currency to the dollar. As the dollar has undergone severe devaluations in the gold terms, these countries are facing internal pressure to float their currency away form the dollar. This was in the news in November of 2007.

From the article:

Kuwait in May moved its national currency off a US dollar peg to a currency basket, and it is looking increasingly likely that its fellow Gulf State and OPEC member the United Arab Emirates (UAE) will do the same...

OPEC provides more than 40% of the world's oil supply. In the OPEC meeting in Nov of 2007, Venezuelan, Ecuadorian and Iranian foreign ministers have floated the idea of basing oil prices on a stronger currency like the Euro.

What does this mean for the U.S? This means the dollar will fall faster and what the price of oil will be is anybody's guess. Is $100 a barrel the discount price?

Is it that hard to see that the weapons deal offer has a third rationale, probably a more important one?