Qatar's central bank says GCC countries should learn from current euro zone troubles
Gulf Arab oil exporters should learn from the euro zone debt crisis but press on with their own monetary union project, a senior official from Qatar's central bank said on Thursday.
"I think that the GCC (Gulf Cooperation Council) countries should benefit from the euro experience and continue with the GCC monetary union project without a delay," Khalid Alkhater, Director of Research and Monetary Policy at the bank, told Reuters.
"The monetary union is a strategic long-term project for these countries, not only economically, but it should be also politically," he said in rare public comments by a Gulf central bank official.
"...The costs of not establishing it could be very high for the GCC countries...in the future."
The creation of monetary union became the primary objective of the six GCC members in the early 1980s. Four of them - Qatar, Saudi Arabia, Kuwait and Bahrain - formed a joint monetary council and a forerunner to a Gulf central bank in March 2010.
But the monetary council has since kept a low profile, and most observers believe any unification of the region's currencies will not occur for at least five years.
They cite the euro crisis and a lack of political will following the United Arab Emirates' withdrawal from the project in 2009 among the main reasons. The sixth GCC state, Oman, pulled out in 2006.
The absence of the UAE, seen as providing an economic counterbalance to Saudi Arabia, is an obstacle to further progress towards monetary union in the Gulf, where most countries peg their currencies to the dollar, analysts have said.
Alkhater, who is not a member of the Gulf monetary council, said that the GCC states had more in common than euro zone states, sharing the same culture and language and facing similar political and economic challenges.
"We have six countries that are homogeneous almost in all domains. They share similar production structures, which mean that they are all subject to symmetric shocks," he said in an e-mail response to Reuters' questions.
"Therefore ... the GCC countries are better qualified to satisfy the optimum currency area criteria, and therefore to establish a monetary union, than the euro zone."
A Gulf official has told Reuters that the countries taking part in the single currency project are still dealing with organising the institutions and there was no decision yet on any programme or timings.
"Now, we have a call by some countries (the Saudi kingdom) for political union, therefore, the monetary union can serve as an intermediate step in achieving that goal," Alkhater said.
Social unrest in the Middle East, which also hit Bahrain and Oman, and tensions over Iran's disputed nuclear programme triggered a surprising Saudi Arabia's proposal in December to create a Gulf Union.
But so far the plan has run into worries of some countries about increasing domination of Riyadh, the main force behind political and economic integration in the region, which controls about 30 percent of proven global oil reserves.
A Reuters poll this month showed 14 of 15 analysts did not expect the Gulf to launch a single currency in the next five years. Eight out of 10 said the UAE's return to the project in the future was unlikely or very unlikely.
Utter madness !!. Surely Arabs must have seen and be seeing the utter chaos that has been caused by the European Union and its futile attempt to "mix oil and water" ?. The fact is that despite the existence of the "European "union" "the members cannot agree on ANYTHING and are bickering and arguing over everything and not making any decisions. Do the Arab Countries really want to go down this same route ?.
you missed to point out the significant differences of the GCC nationes. The only issue I see here is the large egos of each nation. Europe is a different story alltogether
I don't get what's the problem.
The issues in Europe are that you have widely different economies all working off the same interest rate.
In the GCC, you don't have this issue. Almost all currencies in the GCC are pegged to the dollar, meaning that issues of interest rates are already essentially working from a foreign economy anyway and have done so for many years. Most currencies in the Gulf are interchangeable, something that's 3 dinars in Bahrain is 30 dirhams in the UAE as a straight conversion. Introducing a 'Khaleeji' currency wouldn't cause any logistical problems at all....except for the banks that make a handsome profit out of exchanging cash.
Jake, do you mean the European countries are ego free????
I think England and Switzerland are pretty happy they are not part of the Euro. If the Middle East or even just the GCC countries went to a single currency it would be worse than Europe. Strong debt free countries should maintain their own currency.
No, of course I know that the Euro Nations aren't without their pride and ego. In addition, they have to deal with new political leaders and their party policies every other year. While the political system here in the Gulf is much more stable. Yet, the previous talks were ended because UAE weren't given the right to be the host of the "GCC Central Bank" and that was way before the real EU mess surfaced. As Doug mentions, it's a lot easier to implement here than elsewhere.