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Mon 25 Feb 2008 10:35 AM

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Single currency 'long-term' objective - UAE

Central bank governor says implementation of monetary union should be in stages.

A Gulf Arab plan to create a single currency is a "long-term" objective, UAE Central Bank Governor Sultan Nasser Al-Suweidi said on Monday.

"Implementation of monetary union should be in stages," Al-Suweidi said in a speech in Abu Dhabi. "GCC monetary union is a long-term objective," he said, without being more specific.

The GCC is aiming to create a single currency as early as 2010, however Gulf policymakers, including Al-Suweidi, have said the deadline would be difficult, if not impossible, to meet.

The timetable for the monetary union has been in doubt since Oman said in 2006 it would skip the deadline over concerns that spending targets could constrain economic growth.

Plans received a further blow in May last year when Kuwait broke ranks and ditched the dinar's peg to the US dollar, claiming the rising cost of imports in non-dollar denominations was driving up inflation.

Gulf Arab states pegged their currencies to the dollar in preparation for the single currency and monetary union, but the falling value of the US currency and rising inflation has put pressure on central banks to revalue or ditch their dollar pegs.

In his speech Al-Suweidi said Gulf Arab dollar pegs have served Gulf economies "very well" and helped states in the world's largest oil-exporting region prepare for monetary union.

"[Gulf currencies] are pegged to the dollar and that has given the anchor that's needed to reduce the transaction cost of our currencies," Al-Suweidi said.

"They did very well for our economies because it has led to more capital flows in our economies. We've seen more trade, more business being established."

Al-Suweidi also said Gulf Arab economies should expand by at least 6% per year until 2012 on continued high demand for oil and gas from the Far East, China and India.

"Demand for oil and gas is expected to continue to be strong because of demand in the Far East, China and India," he said.

"Therefore, it is not abnormal to predict growth rates of 6.3, 6.1, 6.6% in the GCC until the year 2012."

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