Dangling the currency carrot
The deadline for the common currency hasn’t been postponed officially, but it may as well have been. No one’s surprised.
March 25, 2009 12:58 by Dana El Baltaji
For years, the region has promised that a common currency and a monetary union will unite GCC nations, and help consolidate the region’s efforts to achieve unprecedented economic growth and security. It hasn’t happened yet.
Nasser Al Kaud, the deputy of the assistant secretariat general for economic affairs at the GCC, has called for a delay in January 1, 2010 deadline for the monetary union in a speech he delivered at the GCC Banking Conference in Manama, reports The National. More specifically, he asked for a new timeline.
The call was the first recognition by the GCC Secretariat that the deadline may not be met, in spite of repeated reports by economic analysts stating that the nations are underprepared for the creation of the monetary union and the common currency.
Earlier this month, the Economic Intelligence Unit said that both the monetary union and the currency will not be feasible until 2020. “Most of our interviewees thought it feasible that the GCC would have monetary union by 2020, though not by 2010,” the Economic Intelligence Unit said in its 2020 outlook report.
Oman has already opted out of the monetary union. In 2006, Omani officials said they felt it was unlikely that the GCC nations will be ready by 2010: “Rather than delay the process, they want the other countries to move ahead, and they can join at a later date,” said an official to Reuters, who asked not to be named.
In May 2007, they made their stance official: “Our decision is not to participate in the Gulf monetary union… because we do not want to restrict our monetary and fiscal policies at present,” Homud Al-Zidjali of Oman’s central bank told a banking conference in Kuwait.
Previously, analysts speculated that Kuwait may decide against joining the monetary union.
As of today, the participating states – Saudi Arabia, UAE, Qatar, Bahrain and Kuwait – have not decided on a name for the common currency, a location for the central bank and whether it will be pegged to a basket currency for float freely.
More importantly, however, the nations have not announced their strategies for dealing with the member states’ varied economies. For instance, a study by the Middle East Economic Survey (MEES) published in March showed that Saudi Arabia accounted for 52 percent of the GCC’s GDP, compared with 22 percent for the UAE and 12 percent for Kuwait.
The nations, however, continue to push for the monetary union, citing economic and commercial gains as some of the main reasons behind the initiative.
How will the nations deal with their differences in time for the monetary union’s 2010 deadline? And how far back will the new deadline for the common currency be pushed back (if at all)?