Gulf single currency unlikely in next 5yrs - GCC head

Rejoining the union is 'off the table' said UAE, while Oman will not reconsider decision.
Gulf single currency unlikely in next 5yrs - GCC head
CURRENCY UNLIKELY: Gulf Arab countries are unlikely to launch a single currency in the next 5 years due the preparations required. (Getty Images)
By Martin Dokoupil and Souhail Karam
Wed 26 May 2010 02:11 AM

Gulf Arab countries are unlikely to launch a planned single currency in the next five years given all the preparation required, the head of the Gulf Cooperation Council said on Tuesday.

Abdulrahman al Attiyah, Secretary General of the Gulf Cooperation Council (GCC), also said he expected the UAE and Oman, which quit the single currency project, would eventually join the monetary union but not until after the currency had been launched successfully.

Last year, GCC abandoned an initial 2010 deadline for issuing common notes and coins. It has not specified a new timeframe for the launch but many analysts see 2015 as a likely launch date.

In a written response to questions emailed by Reuters, Attiyah said: "In a reflection to the sophisticated nature of the technical, legislative and institutional requirements, I don't foresee the currency to be launched in 2015."

Four Gulf countries pursuing the union - Saudi Arabia, Kuwait, Qatar and Bahrain - launched a forerunner for a Gulf central bank in March, but declined to reveal a roadmap for a single currency.

Gulf monetary union was designed to emulate the euro zone and Attiyah said the GCC should draw lessons from the euro zone debt crisis. He indicated that the return of the UAE and Oman was still on the cards, but rather at a later stage.

The UAE withdrew from the project a year ago in protest at a decision to house the Gulf monetary council in the Saudi capital Riyadh. Oman quit the project in 2006 and has repeatedly said it was unlikely to rejoin anytime soon.

Attiyah said: "The UAE and Oman are neither objecting to the project nor eliminating the possibility to join. In fact, they are supporting the project by being active members in the technical loop with respect to the single payment system and the harmonized banking supervision legislations."

He added: "The monetary union project is in the preparatory phase and the possibility for both countries to be part of it remains high, especially if a successful and strong currency is launched."

Monetary union in the region has been delayed by old political rivalries as some countries did not want Saudi Arabia, the largest Arab economy and the world's top oil exporter, to hold too much influence.

Kuwait's plan to stick to pegging its dinar to a currency basket for the foreseeable future also raised questions as the other three countries favour their currency links to the US dollar. Attiyah, however, said that was not a problem.

Attiyah said: "The current exchange rate scheme in Kuwait is not an obstacle by all means since the Kuwaiti dinar still moves closely in an almost identical path with the rest of GCC national currencies."

He added: "It is rather an enlightening experience for the future central bank when manufacturing the single exchange rate policy."

Kuwait's decision in 2007 to ditch its dollar peg to contain strong inflationary pressures raised scepticism since Gulf countries had agreed to keep their currencies tied to the dollar.

Analysts consider the dollar peg to be the best fit for a single Gulf currency, at least in the initial stage, as other regimes would make budget oil revenues more volatile.

In March, the Saudi central bank governor was appointed head of the Gulf monetary council, underscoring the kingdom's dominance and reducing the likelihood of either the UAE or Oman joining the union.

The UAE central bank governor said on Monday, that rejoining the union was off the table at the moment, while Oman said repeatedly it would not reconsider its decision.

The six nation GCC is a loose economic and political bloc with its secretariat operating as its executive body with prerogatives similar to those of the European Commission. (Reuters)

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