Abdul Rahman Hamad Al-Attiyah, the group’s secretary-general, said Riyadh was chosen as the location for the region’s monetary council, the precursor to the new central bank. He said details of the agreement would be released later.
The announcement marked a major step toward advancing the Gulf region’s monetary union plan that also includes a unified currency. The effort, in the works for years, has stalled on a number of issues, including Oman’s decision not to participate in the single currency and Kuwait’s decision to drop the US dollar as a currency peg.
Al-Attiyah said the next stage of the monetary union plan will focus on setting up the legislative and monetary framework before moving to propose a single currency, steps analysts say are crucial if the bank is going to be effective.
GCC officials had set a target of 2010 for the new currency, but they have since acknowledged that this deadline would not be met.
Following a meeting in December, the bloc set the end of this year as a deadline for ratifying the charter of the monetary council, which would subsequently work to lay out a timeline for the establishment of a unified currency.
The announcement followed a meeting of representatives from the Gulf Cooperation Council, which includes Saudi Arabia, Qatar, Bahrain, Oman, Kuwait and the United Arab Emirates. Several of the countries had been vying to host the bank, including the United Arab Emirates.
Several factors set economic and political powerhouse Saudi Arabia apart from the other Gulf countries. The Kingdom is the world’s largest oil producer and has the region’s biggest economy with an overall domestic product of about $ 470 billion. The de facto head of the Organization of the Petroleum Exporting Countries is also the only Arab member of the Group of 20 nations.
John Sfakianakis, chief economist at SABB, the HSBC Holdings PLC affiliate formerly known as Saudi British Bank, said “the world looks at the location (of the bank) as one of the political issues dividing the different member states.”
But more important, he stressed, “is the issue of the power of the central bank, the charter of the central bank, the people who will man the central bank and … the sovereignty of the central bank.”
He also said the bank should have the “institutional capacity to do what it’s supposed to do, which is to be a central bank of the region, not a mere institution.”