GCC meeting to jumpstart monetary union

The summit will finalise a single currency charter that will pave the way to its implementation.

The region may edge closer towards monetary union this week, when GCC officials gather in Jeddah to finalise a single currency agreement. Originally, the GCC aimed to have a common currency in circulation by Jan 1 2010, a deadline most analysts say is unlikely to be met. The currency does not even have a name yet - although suggestions include the Khaleeji - Arabic for "Gulf" - or the Khaleej dinar. In the interest of maintaining momentum, there has been talk of introducing monetary union as soon as it is ratified by only three of the GCC's five participating states. However, the attendees of this week's meeting seem to be leaning away from that option in favour of requiring unanimous ratification, according to an official source. Most observers still see this week's summit primarily as a display of commitment to the dream of monetary union. "What I'm looking for coming out of the meeting is concrete steps in terms of moving towards a monetary union," said Giyas Gokkent, the head of research at the National Bank of Abu Dhabi. "There are a number of benefits to be had from an agreement, but ultimately it's a political project, since you'll always have a certain degree of sovereignty loss with an agreement." This week's deliberations will be conducted by all GCC countries except Oman, which withdrew from the process in 2006. Today and tomorrow, the GCC central bank governors will discuss the details of a monetary union agreement and a monetary council charter. On Wednesday, the central bank governors will present the two documents to the GCC finance ministers for approval. If the ministers agree with the central bank governors, the two documents will then be submitted to the GCC heads of state in November, during a GCC gathering in Muscat. According to a senior official at the GCC, two notable items are on the agenda: finalising the terms of a monetary union agreement; and deciding on the location for the Gulf monetary council. Since the monetary council will function as the core of any future GCC central bank, it is likely that wherever the monetary council sits, that is where the new central bank will be located. Juma al Ghailani, an economist and founder of the Gulf Economic Association, said that Bahrain was the most likely location for the council. "Bahrain has financial market stability, it is in the middle of the GCC, and they have strong relations with all of the countries in the GCC." However, other locations have their champions, with Dubai, Qatar, Riyadh and Kuwait City among the contenders. Saudi Arabia is arguing that just as the European Central Bank was located in Frankfurt, the capital of the region's largest economy, so the kingdom should get to host the central bank. The main obstacle to establishing the monetary union is gathering the requisite "sovereign will" among GCC leaders to create a unified system of statistics and communication within the Gulf, according to Mr Gokkent. Only with such a system in place could the GCC successfully achieve monetary union, he said. Daniel Kaye, a senior economist at the National Bank of Kuwait, noted that once the monetary union agreement was in place, Gulf states should begin to integrate rapidly. "There are reasons to believe that, once started, financial integration in the GCC could be swifter and more harmonious than was the case with Europe's introduction of the euro in the 1990s," he wrote in a report last week. If the heads of the Gulf states agree to go ahead and pick a location in November, they will still have to present the terms of their agreement to their respective governments for ratification. To fully ratify the monetary union agreement, a country must deposit signed copies of it with the GCC secretariat. Once that is done, the agreements will then function as a contract, binding the member state to implement the terms of the monetary union agreement. Because each state must ratify the agreement separately, some officials within the GCC have worried that ratification could delay the monetary union project even further. [e-mail]