Six countries in the Gulf Cooperation Council are planning a single currency by 2010. However, this deadline is in doubt after Oman said it would not meet the target.
The GCC countries had agreed to keep their currencies pegged to the dollar in the run-up to 2010. But markets have been betting the dollar’s decline would tempt some Gulf states to change dollar-pegged exchange rates, especially after Kuwait broke ranks and adopted a currency basket in May.
“Give me a certificate, I will sign it. For the UAE I can say comfortably and surely that we will not move alone and we will move with other GCC countries. We will all be together in it. No we are not ruling out, but we will have to move together,” UAE central bank chief Sultan Nasser Al Suweidi said.
“We meet regularly and we discuss these issues. These are monetary and exchange rate policies and if we decide that exchange rate policies need that we move to a basket … we will do that,” he told reporters.
He added that the monetary union will come in three stages and the unified currency will come after the GCC sees the common market was working to the group’s satisfaction, hinting that the 2010 GCC deadline for the single currency might be delayed.
“Our monetary union consists of three stages but they don’t need to be implemented at the same time. Stage one, two will be completed by 2010 and stage three will be a unified currency … we will defer it until we have a common market working to our satisfaction.”
Suweidi later said the GCC was between the first stage —“getting capital flows right”, and the second phase — working towards a common market and adjusting policy.
Suweidi was speaking on the sidelines of a gathering of the world’s central bankers at the Bank for International Settlements in Basel.
A poll in March tipped the UAE as the country most likely to revalue its currency after Kuwait to cope with the fallout from the dollar’s fall.
Kuwait cited imported inflation as the main reason for its May 20 decision to adopt a basket of currencies. Inflation is a region-wide problem as capital is flying into the Gulf economy, which enjoys strong growth thanks to high oil prices.
Suweidi said the GCC countries did not face a permanent inflation problem but did have bottlenecks in real estate which were likely to be temporary.
Asked about rising global yields which could reflect inflation concerns, Suweidi called for close monitoring.
“We have to put measures to counter inflation when we see them. We are an open economy and we ought to be, we will be affected by all developments. We have to be flexible. We have to monitor them (inflation pressures) closely,” he said.
The GCC consists of the UAE, Saudi Arabia, Kuwait, Qatar, Bahrain and Oman.
