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29 February 2024

GCC currency union won’t be affected by Oman backing out

By Safura Rahimi

Oman’s decision to withdraw from the Gulf monetary union will not disrupt the proposed currency plan, said Chief Economist at the DIFC on Tuesday.

“I don’t think [Oman pulling out from the proposed union] will derail the process – Oman has already indicated previously that it wasn’t considering the move,” Dr Nasser Saidi told Emirates Business.


The GCC plan for a common currency faced a setback on Sunday when Oman’s Central Bank governor finally announced its decision to pull out altogether from the proposed common currency after experiencing the highest inflation rate in the GCC since 1991.


However, even without Oman, Saudi Arabia, the UAE, Bahrain, Qatar, and Kuwait could still form the union, just as the EU was established without the United Kingdom. “What I think is important in the case of monetary union for GCC countries is the decisions to be taken by Saudi Arabia and the UAE, given the size of their economies,” Dr Saidi said.


“They have to be the core drivers, with maybe other countries coming in at different times.”


With them both pushing for a union – similar to France and Germany paving the road towards the euro – they could create enough momentum to move towards a common currency, he said.


Kuwait’s US dollar de-peg in 2007 and Oman’s opt out of joining the monetary union in 2010 have led to mounting pressure on monetary authorities to change their currency policy after the US dollar’s depreciation. Dr Saidi said the best solution for GCC countries is a basket of currencies consisting of the euro, US dollar and Japanese yen.

“If you look at the volatility and the relationships [of the GCC], and which countries they should link to, it turns out the best answer is to have a basket,” he said.


A report from the Dubai Chamber of Commerce and Industry on Monday said it is most likely that the UAE Central Bank will revalue the dirham against the US dollar in line with other GCC currencies. Inflation rates are not to exceed two per cent of the lowest three’s average but so far this has not been achieved.


“The disparities in inflation rates undermine the convergence of economies in real terms,” it said.