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Wed 18 Mar 2009 10:25 AM

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Gulf monetary union not 'feasible' until 2020 - report

2010 deadline for single GCC currency unlikely, says the Economic Intelligence Unit. 

It will be another 10 years before monetary union takes place in the Gulf, according to a new report from the Economic Intelligence Unit (EIU).

Five GCC countries; Saudi Arabia, UAE, Kuwait, Bahrain and Qatar agreed last December on a 2010 deadline for the single currency, while Oman opted out of the scheme.

However, a report by the unit that interviewed economists, academics, and leading experts in the development of the GCCb said a 2020 was the most feasible time span.

“Most of our interviewees thought it feasible that the GCC would have monetary union by 2020, though not by 2010,” the report said, according to Bloomberg.

The report's findings follow last week's call by the govenor of Bahrain's Central Bank for the GCC states to revise the 2010 target, set in 2001.   

Rasheed Al Maraj said: "We will have to revisit this timing", adding that he saw no problems with legal ratification of the proposal.

The EIU's report went on to call into question the original plan to peg the new currency directly to the dollar.

“The GCC countries will peg their common currency to a trade-weighted basket of currencies by 2020, although one or two states may opt out of this initiative,” it said.

“Assuming that oil is still being traded in dollars in 2020, a GCC currency basket is likely to be heavily weighted toward the dollar, as is already the case in Kuwait,” the report added.

Obstacles facing the monetary union plan include a decision among the five countries on the location of a central bank and convergence criteria.

The GCC economy was expected to grow to $2 trillion by 2020, providing nearly one-quarter of the world’s oil and an increasing amount of petrochemicals, metals and plastics, the report added.

“Gulf investors and sovereign wealth funds are likely to diversify their assets into Asia and Africa, and the region is likely to export more of its oil to industrializing countries,” it concluded.

The EIU is part of The Economist Group and has offices all over the world from which it carries out in-depth analysis on economic activity and future developments.