A 'feasible' schedule for single currency this year

Gulf countries will decide on a "feasible" schedule for rolling out a single currency after reviewing a 2010 target for monetary union this year, Saudi Arabia's central bank governor said.

Hamad Saud Al Sayyari reiterated the monetary union timeline has become very difficult due to high inflation and an unsustainable boom in the economy, but said regional commitment to the project is firm. "It's a tight schedule, it's very difficult to meet. But that doesn't mean the union is out – we've already agreed on the framework," Sayyari said.

"The original schedule to issue a currency, that is very difficult to meet. So we will review this schedule and decide on a schedule that is feasible… because 2010 was supposed to be the date for issuing new banknotes."

Any revisions to the timeline must be decided at the meeting between Gulf central bank governors and finance ministers in September and Gulf leaders in November, Sayyari said. "It is premature to say what's going to happen," he said.

The project is facing hurdles as inflation spirals to record and near-record highs across the world's biggest oil-exporting region and the economies boom on a rapid rise in oil prices.

Apart from price rises, Sayyari said key economic variables which the region needs to meet before a union were either too high or too low because of an economic boom.

"There is a boom that influences various variables that are abnormal now," he said. The monetary union project was already pushed off the rails when Oman decided in 2006 it would not join and Kuwait broke ranks with its neighbours in 2007 and severed its dollar peg.

The recent surge in oil prices means there could be a big decline in the future and such volatility is unwelcome as it hits the economy, Sayyari said. "It's not welcome because increases will be a seed for a substantial fall in the future. We would like stability and reasonable prices," he said. "This boom and bust is very unhealthy for the economy and we don't welcome volatility." Surging energy costs have led to increased money flows for Saudi Arabia, the world's biggest oil exporter, and as a result inflation has been driven above 10 per cent earlier this year.

Sayyari said adjusting exchange rates would not solve the issue of high inflation, despite suggestions by some officials, including Bank of England Governor Mervyn King, that low interest rates in some countries that peg their currencies to the dollar are helping to fuel commodity price inflation. "Global inflation is imported but not because of exchange rates. There is some [effect] but very limited. Adjusting it will not solve the inflation problem," Sayyari said.