19 May, 2010
Gulf currency union faces delay: IIF
A monetary union between four countries of the six-nation Gulf Cooperation Council (GCC), planned for 2010, would be delayed due to a lack of progress in putting institutional arrangements in place, the Institute of International Finance said.
Although most of the technical and policy convergence criteria have been achieved, a monetary policy framework and a common system of payments and settlements are yet to be put in place, said the Washington-based institute, also known as IIF.
There is also a lack of progress in the development of an efficient payments system and harmonisation of statistics that are essential for the functioning of a single currency, it said on Monday.
“Also, there is a need to set up a common accounting framework and adequate budgetary procedures. Above all, the creation of a central fiscal authority, whose critical importance has been illustrated in the Eurozone in recent weeks, would a daunting task but is essential to the success of the GCC monetary union over the long term,” it said.
While only four GCC countries including Saudi Arabia, Qatar, Bahrain and Kuwait have signed the agreement for the monetary union, the other two — UAE and Oman — have the option to join the union at a later stage, the IIF said in its “GCC Regional Review.”
According to analysts, it is unlikely that a GCC currency will be active before 2012. “Inflation in the region is set to be less volatile in 2010-2015 than in 2004-2009, which should provide a more stable background to the implementation of a single currency,” said Euromonitor International. In 2011 inflation is projected to be 3.7 per cent in the UAE and 4.4 per cent in Saudi Arabia.
Nasser Al Kaud, GCC’s Deputy Assistant Secretary General for Economic Affairs, said on Tuesday that the Greek crisis would not hamper plans by the four Gulf countries to launch the monetary union. “For sure we will learn from the Greek lessons and it will strengthen our experience, but it won’t cause any hesitation on our side when its come to the monetary union, “ Saudi was quoted by Bloomberg as saying.
The withdrawal of Oman and the UAE from the monetary union has weakened the importance of the GCC single currency. The UAE dropped out in 2009 after it was decided that the union’s central bank will be based in Riyadh.
Economists argue that the Gulf monetary union needs to establish monetary independence for member countries, all of which are pegged to the US dollar, except Kuwait. But Kuwait is pegged to a basket of currencies in which the dollar dominates. The dollar-peg forces Gulf countries to track US Federal Reserve’s monetary policies and restricts them from initiating independent monetary actions, including tailor-made measures to control inflation.
In March this year, central bank governors from Saudi Arabia, Kuwait, Qatar and Bahrain started official talks to push forward the monetary union, but have refused to put a deadline on when a single currency would be introduced. Muhammed al Jasser, governor of the Saudi Arabia Monetary Agency, was elected as the first chairman of the monetary council, the forerunner of the central bank.
Khaleej Times
Gulf currency union faces delay: IIF
A monetary union between four countries of the six-nation Gulf Cooperation Council (GCC), planned for 2010, would be delayed due to a lack of progress in putting institutional arrangements in place, the Institute of International Finance said.
Although most of the technical and policy convergence criteria have been achieved, a monetary policy framework and a common system of payments and settlements are yet to be put in place, said the Washington-based institute, also known as IIF.
There is also a lack of progress in the development of an efficient payments system and harmonisation of statistics that are essential for the functioning of a single currency, it said on Monday.
“Also, there is a need to set up a common accounting framework and adequate budgetary procedures. Above all, the creation of a central fiscal authority, whose critical importance has been illustrated in the Eurozone in recent weeks, would a daunting task but is essential to the success of the GCC monetary union over the long term,” it said.
While only four GCC countries including Saudi Arabia, Qatar, Bahrain and Kuwait have signed the agreement for the monetary union, the other two — UAE and Oman — have the option to join the union at a later stage, the IIF said in its “GCC Regional Review.”
According to analysts, it is unlikely that a GCC currency will be active before 2012. “Inflation in the region is set to be less volatile in 2010-2015 than in 2004-2009, which should provide a more stable background to the implementation of a single currency,” said Euromonitor International. In 2011 inflation is projected to be 3.7 per cent in the UAE and 4.4 per cent in Saudi Arabia.
Nasser Al Kaud, GCC’s Deputy Assistant Secretary General for Economic Affairs, said on Tuesday that the Greek crisis would not hamper plans by the four Gulf countries to launch the monetary union. “For sure we will learn from the Greek lessons and it will strengthen our experience, but it won’t cause any hesitation on our side when its come to the monetary union, “ Saudi was quoted by Bloomberg as saying.
The withdrawal of Oman and the UAE from the monetary union has weakened the importance of the GCC single currency. The UAE dropped out in 2009 after it was decided that the union’s central bank will be based in Riyadh.
Economists argue that the Gulf monetary union needs to establish monetary independence for member countries, all of which are pegged to the US dollar, except Kuwait. But Kuwait is pegged to a basket of currencies in which the dollar dominates. The dollar-peg forces Gulf countries to track US Federal Reserve’s monetary policies and restricts them from initiating independent monetary actions, including tailor-made measures to control inflation.
In March this year, central bank governors from Saudi Arabia, Kuwait, Qatar and Bahrain started official talks to push forward the monetary union, but have refused to put a deadline on when a single currency would be introduced. Muhammed al Jasser, governor of the Saudi Arabia Monetary Agency, was elected as the first chairman of the monetary council, the forerunner of the central bank.
Khaleej Times
related article ~
