Gulf Single Currency Needs Time: Kuwait

Gulf single currency needs time: Kuwait

28/09/2009 7:19:12 AM

Gulf states should implement a monetary union and single currency in phases, Kuwait's central bank governor has said casting increasing doubt on a 2010 target date.

"Due to the limited progress achieved so far... I believe that the best way is to work out an administrative plan for the monetary union and single currency and implement it in stages," Sheikh Salem Abdulaziz al-Sabah told Awan newspaper in comments published on Sunday.

The six-nation Gulf Cooperation Council (GCC) plans to launch monetary union and a single currency in 2010, although many experts believe the target date is too ambitious and unrealistic.

Kuwait was one of four GCC members which in June signed an accord to create a joint monetary union council, a prelude to establishing a Gulf central bank and launching monetary union and a single currency.

Saudi Arabia - dominant because of its OPEC connections, Qatar and Bahrain also signed the pact, while the remaining two members, the United Arab Emirates and Oman, did not.

The UAE was upset because the Saudi capital Riyadh was selected to host the future GCC central bank, while Oman withdrew from the monetary union in 2007 saying it was not ready to meet the preconditions.

Sheikh Salem said the administrative plan should focus on the institutional requirements of the union including financial, trade, statistical and common market policies.

He also said that printing banknotes for the new currency would take three years to complete.

The GCC states have agreed on a number of monetary union requirements but failed to reach consensus on others. They have also failed to fully implement a customs union launched at the beginning of 2003.

The governor said Kuwait has no plan at the moment to revert to pegging the dinar to the dollar, more than two years of linking it to a basket of international currencies.

"At this moment we don't see a need or benefit to abandon our policy of pegging the dinar to a basket of currencies," Sheikh Salem said.

In 2003, Kuwait ended three decades of pegging the dinar to a basket of currencies and linked it to the US dollar in preparation for the GCC monetary union. But it reverted to the basket in May 2007 to fight soaring inflation.

Sheikh Salem said he expects inflation in the oil-rich emirate to drop below five per cent this year, from over 10 per cent in 2008.

The latest available figures, released in February revealed inflation was recorded at 5.9 per cent.