“Certainly, the decision casts a serious doubt over the Gulf states’ ability to launch their single currency in 2010… I think such a step is difficult now. It’s premature,” said Saudi National Commercial Bank chief economist Saeed Al Shaikh. “It makes it much more difficult to prepare the necessary groundwork for a single currency… It’s a step backward,” Shaikh said.
The Gulf Cooperation Council, which groups energy-rich Bahrain, Kuwait, Oman, Qatar, United Arab Emirates and Saudi Arabia, has already taken a number of measures in its bid to launch a monetary union and a single currency by 2010.
But last year, Oman said it would not be able to meet the target date while some countries have reportedly expressed reservations on a number of criteria, fuelling speculation that the launch date may not be met.
In a surprising decision on Sunday, Kuwait pegged the dinar to a basket of currencies, more than four years of linking it to the dollar in preparation for the single GCC currency. “Kuwait’s decision clearly confirms that the GCC states will not be able to launch their single currency in 2010… There is not enough time for them to meet the target date,” Saudi economist Abdulwahab Abu Dahesh said.
Kuwaiti officials moved to assure GCC partners that the decision did not mean withdrawing from the single currency, although they stressed the decision was taken due to the slow process and to curb inflation.
“Kuwait will continue to work towards achieving the GCC single currency… We will comply with all the economic and fiscal criteria necessary for the single currency,” Finance Minister Bader Al Humaidhi said in a statement. He said the decision was taken to curb rising inflation that reached four percent due to the weak dollar, and to cut the cost of Kuwaiti imports from countries other than the US.
State Minister for Cabinet Affairs Faisal Al Hajji said the move was taken because the process for a GCC single currency “was moving slowly.”
Shaikh said Qatar and the UAE “could resort to similar decisions in a bid to offset soaring inflation rates,” resulting from the weak dollar.
GCC states have agreed to a number of monetary union criteria but failed to reach a consensus on several key issues. The main stumbling blocks include agreement on an inflation rate, which has soared in Qatar and UAE and the lack of political willingness by member states to relinquish part of their independence in favour of a single currency.
Kuwaiti economist Hajjaj Bukhdour said the emirate’s decision has “dealt a heavy blow to the GCC monetary union and single currency and the 2010 target year is now impossible to meet.”
