Independence vowed for Gulf central bank

MONETARY UNION: A draft of the planned monetary union agreement states the Gulf central bank will be independent from member countries. (Getty Images)

A planned joint Gulf Arab central bank will be independent from the governments of its member countries, according to the latest draft of the planned monetary union agreement to be discussed on Tuesday.

Finance and foreign ministers from the six oil-exporting members of the Gulf Cooperation Council (GCC) will meet in Muscat on Tuesday to hammer out a final statement for leaders to sign at a meeting in December.

In September, Gulf Arab finance ministers approved the framework for their monetary union but left questions over the timing of the launch of the single currency, which is at the heart of the project, unanswered.

They had also left doubts lingering over the independence of a future common central bank and deferred a decision over its location to next month's leaders summit.

The latest draft explicitly addressed the issue of independence.

"The central bank will be established to replace the monetary council. It has a complete legal independent personality," a senior GCC official said, reading to newswire Reuters a copy of the draft.

"All of the GCC bodies, including the government bodies, are forbidden from giving any directions to the GCC central bank or the national central banks or any of their executive members for the sake of influencing its performance according to this agreement," the official said.

GCC finance ministers last met in October, when they discussed their response to the global downturn that has put brakes on the region's six-year oil-fuelled boom.

They said at the time that the turmoil gave new urgency to for a long-standing plan for a monetary union to support the region from future instability.

The GCC launched its monetary union plans in 2001 but setbacks have since dogged the project.

Inflation has been a key challenge as Gulf states struggled to meet a common understanding while battling soaring prices.

Most Gulf states fix their currencies to the dollar, which forces them to track US rate cuts even when their own economies are booming.

Oman has already dropped out of the monetary union project and Kuwait threw the plan into doubt when it dropped its dollar peg to battle soaring prices.

Inflation has started to show signs of easing in recent weeks as oil prices dropped to below $50 a barrel from highs of almost $150 a barrel in July and on a dollar recovery.

"The objective of the central bank under the agreement is to maintain price stability in the single currency area within the framework of optimal utilisation of economic resources with the aim of maintaining economic stability," the official said.

He also said the agreement will make local central banks responsible for supervising their own banking system although they would coordinate with the GCC central bank.

The joint central bank would be preceded by a joint monetary council to help the transition although the draft did not give a specific timeframe for how long the transition phase might take.

The unified monetary authority cannot be established until the five countries taking part in the monetary union have all ratified the agreement. (Reuters)

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