Tuesday, 14 October 2008 |
updated 1 minute ago
20:32 UAE time

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Gulf to scrap 2010 single currency deadline

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TOO SOON: Al-Sayyari has said the GCC will revise the 2010 deadline for a Gulf monetary union at the next meeting in the autumn. (Getty Images)

Gulf Arab oil producers will reconsider a 2010 target for monetary union at an autumn meeting as the single currency plan is hindered by economic growth and soaring inflation, Saudi Arabia's central bank governor has said.

In the clearest comments yet that the project has been pushed off the rails, Hamad Saud Al-Sayyari said 2010 is "too soon" as Gulf economies surge on a near seven-fold rise in oil prices since 2002 and inflation jumps to record highs.

"2010 is too soon and therefore it is a big challenge," Al-Sayyari told Saudi-owned Al Arabiya television.

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"The programme will be discussed and reconsidered at a joint meeting with finance ministers this autumn," he said in remarks aired on Tuesday.

Central bankers from Saudi Arabia and four of its neighbours agreed at a meeting this month to create the nucleus of a joint central bank next year, but signalled the new common currency would not be in circulation by the agreed 2010 target.

The governors are set to meet with Gulf finance ministers to approve a final draft of the monetary union deal this September. They will also discuss a draft agreement to set up a monetary council that will be the first leg of a central bank.

But while there is impetus from GCC member states to push forward the project, economic circumstances are slowing it down, Al-Sayyari said.

"Everybody is in agreement about the seriousness of the project and its importance," Al-Sayyari said.

"But because the region is passing through an abnormal phase in economic activities and an increase in inflation... achieving this target is very difficult."

Inflation threatens to ravage Gulf Arab states, whose loose monetary policies and windfall profits from oil have driven price increases to unprecedented levels and threaten to destabilise their booming economies.

In top oil exporter Saudi Arabia, prices rose 10.5 percent in April, their fastest pace in at least 30 years, while UAE inflation soared to a 20-year peak of 11.1 percent last year.

Five of the GCC countries had agreed to keep currency pegs to the US dollar until achieving monetary union, which has forced them to track seven US interest rate cuts since September, curtailing their efforts to fight inflation.

The currency plan has already been thrown into disarray twice after Oman decided in 2006 not to join and Kuwait severed its dollar peg in May 2007. (Reuters)

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