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26 February 2024

GCC common currency dollar peg dilemma

By Nadim Kawach


Gulf countries are debating whether to peg the single common currency, which is likely to be launched in 2010, to the US dollar, a senior Gulf economy official said.


Abdul Aziz Al Owaishiq, Director of the GCC Economic Integration Department, told Qatar’s Arabic language daily Al Raya that a debate within the GCC is on to decide whether to peg the planned common currency to the US dollar.


The Gulf Co-operation Council (GCC) countries, which control more than 45 per cent of the world’s oil wealth, are sticking to their original 2010 deadline to set up the currency union despite Oman’s decision to suspend its participation.


Owaishiq said GCC monetary authorities have not taken any decision yet on the link between the planned common Gulf currency and the dollar, adding it would be up to the GCC heads of state to decide on this issue.


“I would like to note that the Supreme Council has empowered the GCC monetary authority to decide on whether to peg the common currency to one or more currencies or float this currency, depending on the requirements and conditions of the coming stage.”


Owaishiq said the GCC monetary union would accelerate growth in member states. “I can tell you that pegging the GCC currencies to the US dollar does not necessarily mean their exchange rate cannot be changed against the dollar while keeping that peg,” he said.


“I believe if the change in this rate by the GCC countries is by the same percentage, then this will not affect the arrangements for the monetary union because the GCC’s proportionate exchange rates will remain fixed,” he added. GCC states have decided to keep their currencies linked to the US dollar as they pursue plans to create a landmark monetary union following the launching of the common market early this year and the customs union four years ago.

Kuwait, which had its dinar pegged to a basket of currencies for more than two decades, joined the peg two years ago before it decided to revert to the basket, in which the US dollar is believed to account for 80 per cent. Speculation has mounted over the past few months that some GCC states will appreciate their currencies against the dollar while keeping the peg in a bid to curb inflation that has surged to double-digit rates in some member economies.


“The currency union timetable is still on track for 2010. It is a decision by the GCC Supreme Council (heads of state),” he said.


Commenting on revaluation, he said a possible decision by Gulf Arab states to revalue their currencies against the weakening US dollar will not block their plans to create the Middle East’s first monetary union.