Bahrain Casts Doubt On GCC Currency Union


Crown Prince Sheikh Salman bin Hamad Al Khalifa’s remarks in an interview with the McKinsey Quarterly business journal were confirmed to Reuters on Sunday by a spokeswoman for Bahrain’s Economic Development Board, which is chaired by the prince.


‘I have my doubts that the 2010 target will be met because of a number of technical issues that need negotiation,’ Sheikh Salman said.


Among these issues are agreeing to the convergence criteria for inflation, public debt, and the setting of interest rates.’


Questions about the 2010 deadline have fired market speculation that Gulf states might change a system of dollar-pegged exchange rates set up to prepare for monetary union.


Currencies rallied across the region last month after the UAE said Gulf central banks were reviewing pegs to the dollar, which fell around 10 per cent against the euro, fuelling imported inflation in several Gulf states.


Bahrain, UAE, Saudi Arabia, Kuwait, Qatar and Oman are working towards monetary union, although Oman plunged the project into crisis in December, saying it would not join in 2010.


Omani officials have said criteria, including capping budget deficits at 3 per cent of gross domestic product, could constrain Oman as it seeks to diversify its economy away from dwindling oil revenue.


Last week, Bahrain’s central bank governor Rasheed Al Maraj said GCC states were sticking to their plans for a single currency, but called the 2010 deadline ‘a challenge’.


The UAE has said the Gulf was reviewing the entire currency project and hoped to agree on a simpler form of monetary union.


The speculation in currency markets reached fever pitch when UAE Central Bank chief Sultan Nasser Al Suweidi said last month Gulf states could decide at a March meeting in Riyadh, whether to keep or change their exchange rate regime.


Oman and Bahrain, the smallest of the six economies, have ruled out any changes to their exchange rate policy as has Saudi Arabia

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