By Joel Bowman
Monetary union plans in further doubt over suggestions rogue states may break rank from GCC schedule.
The UAE and Saudi may break ranks from the GCC’s declared schedule for establishing a common currency and ‘go it alone’ according to experts speaking at the DIFC on Monday.
The tenuous 2010 deadline for GCC countries to establish a common currency was cast into further doubt on Monday when experts meeting at the Dubai International Financial Centre (DIFC), uniformly declared the 2010 deadline “doubtful.”
Speaking at the official launch of Standard & Poor’s (S&P) first GCC office, to be located in the DIFC, the finance centre's chief economist, Nasser Saidi, told reporters that “2010 is highly ambitious, largely because of the divergences in conditions within each of the GCC countries.”
Although saying it was encouraging to see regional delegates sticking firm to their single currency commitment at the GCC summit in Doha in December, Saidi hinted that countries may instead choose to break ranks and “go it alone.”
“What you could have is something like what occurred with the Euro, where France and Germany basically took the lead,” Saidi said, identifying the UAE and Saudi as the most likely to succeed from the common market arrangement and adjust their monetary policies individually.
Saidi said it is likely that other countries would follow the stronger regional economies’ leads if they decided to break rank, just as currencies trending with the Deutschmark in Europe gravitated toward the Euro after Germany’s decision to do so in 1999.
Farouk Soussa, director of sovereign ratings for S&P, added that “The expectation is that the 2010 deadline will not be met.”
Soussa pointed to Kuwait’s decision to abandon its peg to the dollar back in May of 2007 and Oman’s recent withdrawal from official schedule as evidence of the difficulties in securing a blanket monetary policy at the current time.
Saidi’s comments came after UAE newspapers reported an official document had been leaked in January outlining plans to study a new date and timeframe for establishing monetary union and a single currency.
The GCC’s peg to the ailing US dollar has been the source of much frustration for regional economies, unable to raise rates to fight record inflation as they are obliged to mirror activity by the US Federal Reserve.
While most recognize the hindrance the currency peg has caused local economies as the value of the greenback has eroded, some analysts have argued that a potential stall in the decline of the dollar relative to the greenback will ease pressure to revalue this year.
The dollar has so far made fractional gains against the euro this year after sliding approximately 12% last year.