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Mon 25 Feb 2008 11:59 AM

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Qatar urges GCC to resolve single currency differences

Prime Minister Sheikh Hamad says monetary union could avert unilateral revaluations.

Qatar's prime minister urged Gulf Arab oil producers to bridge differences over a single currency, saying monetary union could avert possible unilateral revaluations designed to check soaring inflation.

Qatar's dollar-pegged riyal is undervalued by as much as 30% and currency revaluation is being studied, among several options, to check inflation, Sheikh Hamad bin Jassim bin Jabr Al-Thani said in an interview late on Saturday.

Inflation in the richest Arab country by per capita hit 13.74% in the fourth quarter.

"It's now the time for the Gulf to have its own currency," Sheikh Hamad said in the Qatari capital, Doha. "We are thinking about it and in talks... we are discussing with Gulf countries, but there is no consensus."

Qatar, the world's largest exporter of liquefied natural gas, would prefer to make any change to its currency policy in concert with Saudi Arabia and its other Gulf Arab partners preparing for monetary union as early as 2010, Sheikh Hamad said.

"We prefer always to act with all the GCC countries," said Sheikh Hamad, whose country currently chairs the six-nation GCC that includes the UAE and Kuwait.

Asked how long Qatar could continue with its existing foreign exchange regime, he said: "We cannot give a time. It is something that we have to see how it goes and look at where the dollar is going."

Dollar pegs force Gulf oil producers to shadow US monetary policy at a time when the Federal Reserve is cutting rates to ward off recession and the Gulf economies are booming on a near five-fold jump in oil prices since 2002.

Rifts in Gulf monetary policy widened in May when Kuwait broke ranks with its neighbours by severing its dollar peg in favour of a basket of currencies, saying a weak dollar was driving imported inflation.

Oman has said it will not join a single currency at all, and UAE Central Bank Governor Sultan Nasser Al-Suweidi said in November he was under mounting social and economic pressure to drop the peg.

The GCC "should have a currency with a good weight internationally", Sheikh Hamad said. "The GCC now is capable to do this and have a separate currency."

The exchange rate contributes to about 40% of inflation in Qatar, Sheikh Hamad said.

"It's undervalued by 30%," he said of the riyal. "We are still studying how to deal with this matter."

Qatar will complete a study on how to address foreign exchange weakness and inflation in a "few months", Sheikh Hamad said. (Reuters)

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