Four Gulf nations embarking on the world's second major monetary union may fail to produce a common currency despite final approval of the project by their heads of state, a key Saudi investment firm said yesterday.
Riyadh-based consultancy company Jadwa Investments said it remained doubtful that Saudi Arabia, Kuwait, Qatar and Bahrain would attain the monetary project although they are scheduled to meet in March to create the Gulf Monetary Authority, which will pave the way for a GCC Central Bank.
"A GCC single currency had been scheduled for 2010, but is certain to be delayed. The first meeting of the Monetary Council, the body tasked with drawing up the timeframe for the launch of the currency, is scheduled for March," Jadwa said in a study on the Saudi economy and the GCC monetary union.
"We are doubtful that the project will go ahead and do not expect any form of regional currency to be launched over the next few years. Officials of member governments have said it will be between five and 10 years before a GCC single currency is issued. By this time the exchange rate needs of GCC members are likely to have splintered as their economies continue to diversify at differing paces, diminishing the logic of a single currency."
Jadwa's views are in contrast with optimistic comments by Gulf officials and economists that the region's first monetary union would see light after several years of negotiations on the form and terms of the union.
Gulf officials have even sounded optimistic about the UAE and Oman – the two other members of the Gulf Co-operation Council (GCC) – would rejoin the project, which they have quit over the past two years.
GCC Secretary General Abdul Rahman Al Attiyah said last week the March meeting in Riyadh of the Central Bank governors of the four signatories would formally launch the monetary authority and set action plans for the future.
"This Monetary Authority will be working to transform the currency union agreement into work programmes and action plans as a prelude for launching a strong single currency," Attiyah said.
"After all, the eventual target of this agreement is not only to create a single currency but to build the institutions which are capable of launching a strong currency, protect it and preserve its value in the future."
Another GCC official said he expected the EU-style Gulf single currency to materialise although this would take nearly five years.
"Preparation for the full enforcement of this vital GCC monetary union project will start this year and a common Gulf currency is expected to materialise in 2015," said Abdul Rahim Naqi, Secretary-General of the Dammam-based Federation of GCC Chambers of Commerce and Industry.
Attiyah and other GCC officials have not specified the type of currency that would be introduced by the four members but experts believe it could be first pegged to the US dollar, to which most regional currencies are linked. They said Gulf nations could opt later for a basket of currencies, including mainly the dollar and the currencies of the GCC's main economic partners.
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