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Tue 24 Jun 2008 02:52 PM

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Gulf to scrap 2010 single currency deadline

Saudi central bank governor says 2010 'too soon', new date to be set at autumn meeting.

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.

"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)

Ivo Cerckel 11 years ago

2010 is perhaps too soon for the GCC Single Currency. But why should it be too soon for the GCC Monetary Union? There are other Monetary Unions than Monetary Unions which fit into the International Monetary Fund (IMF)-straitjacket. I understand that the IMF has not yet severed the link between currency and Gold and is still defining the US dollar as a certain quantity of Gold. The euro is the FIRST CURRENCY that has not only severed its link to Gold, but also its link to the nation-state. The GCC Monetary Union could be the FIRST MONETARY UNION to do so - without a single currency. If the GCC Central Banks (including the Central Bank of Oman?) mark their Gold reserves to market like the European Central Bank (ECB), whereas the US dollar, to which the GCC currencies would remain pegged (in a basket), marks them to the model of $42 or so an ounce, we would have a contradiction in the GCC Monetary Union. That cannot be because since Aristotle, the principle of non-contradiction says that it is impossible to be and not to be at the same time and in the same respect. Does that explain why the launch of the GCC Single Currency has been postponed until the dollar collapses completely? In the meantime, the Monetary Council will have to promote the marking to market of their Gold reserves by the GCC Central Banks.