Single currency needed to fight financial storms

Qatar's central banker calls on GCC members to speed up creation of monetary union.
Single currency needed to fight financial storms
By Reuters
Wed 17 Sep 2008 02:04 PM

Gulf Arab states must speed up moves towards a common currency or face intensifying financial storms, Qatar's finance minister said as the region's finance leaders sought to resolve key details on Wednesday.

"We are beginning to see that if we don't agree on these issues, future storms may be more difficult to deal with," said Qatar's Minister of Finance and Economy, Youssef Kamal, adding the US financial crisis underscored the region's need for common structures.

He was speaking at a rare joint gathering of Gulf Arab finance ministers and central bank governors, to be attended by IMF director general Dominique Strauss-Kahn.

As evidence grew that the Gulf's oil-fuelled economies are overheating, bankers of the six-member Gulf Cooperation Council (GCC) meeting in Jeddah meeting one day earlier said they had reached agreement on the charter governing the monetary council that will form the nucleus of a future common central bank.

But key terms to any accord were left unresolved, such as the location of a common central bank and the timing for the new currency, with central bankers deferring to the finance ministers or to Gulf rulers, due to meet in November.

Inflation across the Gulf has been rising, mainly because of surging demand for real estate in an economy spurred by a near five-fold increase in oil prices since 2002.

The Gulf's status as a growth region has shielded it so far from any direct impact from the U.S. financial crisis.

Arab stocks plummeted in recent days due to fear of fallout stemming from the collapse of Lehman Brothers, but rebounded strongly on Wednesday after the Federal Reserve rescued insurer AIG.

The GCC agreed in 2001 to launch a single currency by 2010.

But that deadline has lost credibility over the past two years with Oman's decision to withdraw from the monetary union project and Kuwait's to drop its dollar peg.

Gulf Arab central bank governors said on Tuesday they saw little systematic risk from the US crisis as their exposure to Lehman and US sub-prime assets was limited.

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