Mohsin Khan, IMF’s director for the Middle East and Central Asia, said although some significant steps have been taken recently toward achieving a monetary union by 2010, including the launching of the common market and preparations to set up a monetary council, much remains to be done.
“For example, decisions on the location and power of the central bank and the choice of exchange rate regime of the future common currency, and the need to harmonise regulatory and payment systems and collect and compile regional statistics. Achieving all these by 2010 will be a major challenge.”
On the relevance of continuing with dollar peg, Khan said providing certainty about the parity was an important issue for the transition to a common currency. “All GCC countries, including Kuwait, pegged their exchange rates to the dollar in 2003, providing certainty about the parity at which member would enter the monetary union, an important issue for the transition to a common currency.
Alternatives could be a switch to pegging to a common basket, for example the SDR, especially if monetary union were to be delayed beyond 2010 and a change in the exchange regime were to be seen as useful to bring down inflation ahead of monetary union. However, a basket pegmay not be well understood and therefore less effective in anchoring expectations of inflation and the exchange rate.”
