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GCC single currency delayed
Original 2010 time line is now out of reach; analysts see 2015 as next earliest possibility.
May 26, 2010 9:58 by Katherine Azmeh
Gulf Arab countries are unlikely to launch a planned single currency in the next five years given all the preparation required, the head of the Gulf Cooperation Council said on Tuesday.
Abdulrahman Al-Attiyah, secretary-general of the Gulf Cooperation Council (GCC), also said he expected the United Arab Emirates and Oman, which quit the single currency project, would eventually join the monetary union but not until after the currency had been launched successfully.
Last year, GCC abandoned an initial 2010 deadline for issuing common notes and coins. It has not specified a new time frame for the launch but many analysts see 2015 as a likely launch date.
“In a reflection to the sophisticated nature of the technical, legislative and institutional requirements, I don’t foresee the currency to be launched in 2015,” Attiyah said in a written response to questions e-mailed by Reuters.
Four Gulf countries pursuing the union —Saudi Arabia, Kuwait, Qatar and Bahrain — launched a forerunner for a Gulf central bank in March, but declined to reveal a roadmap for a single currency.
Gulf monetary union was designed to emulate the euro zone and Attiyah said the GCC should draw lessons from the euro zone debt crisis. He indicated that the return of the UAE and Oman was still on the cards, but rather at a later stage.
The UAE withdrew from the project a year ago. Oman quit the project in 2006 and has repeatedly said it was unlikely to rejoin anytime soon.
“The UAE and Oman are neither objecting to the project nor eliminating the possibility to join. In fact, they are supporting the project by being active members in the technical loop with respect to the single payment system and the harmonized banking supervision legislations,” Attiyah said.
“The monetary union project is in the preparatory phase and the possibility for both countries to be part of it remains high, especially if a successful and strong currency is launched,” he said.
Attiyah said Kuwait’s plan to stick to pegging its dinar to a currency basket for the foreseeable future was not a problem. “The current exchange rate scheme in Kuwait is not an obstacle by all means since the Kuwaiti dinar still moves closely in an almost identical path with the rest of GCC national currencies,” Attiyah said.
“It is rather an enlightening experience for the future central bank when manufacturing the single exchange rate policy,” he said. Kuwait’s decision in 2007 to ditch its dollar peg to contain strong inflationary pressures raised skepticism since Gulf countries had agreed to keep their currencies tied to the dollar. Analysts consider the dollar peg to be the best fit for a single Gulf currency, at least in the initial stage, as other regimes would make budget oil revenues more volatile. In March, the Saudi central bank governor was appointed head of the Gulf monetary council.
The UAE central bank governor said on Monday, that rejoining the union was off the table at the moment, while Oman said repeatedly it would not reconsider its decision. The six-nation GCC is a loose economic and political bloc with its secretariat operating as its executive body with prerogatives similar to those of the European Commission.