Leaders meet on single currency

The financial crisis in Greece has already prompted Gulf states to reflect on the pitfalls a regional currency must avoid.

Senior officials from regional central banks gathered in Riyadh to push forward plans to form a GCC single currency amid doubts about the level of support for a monetary union. Lingering concerns about the risks from closer economic co-operation stemming from the euro zone crisis and questions over the benefits of the union could undermine the planning, some analysts say.

"Regular scheduled meetings are taking place to discuss technical issues that are necessary before the single currency can be set up," said Paul Gamble, the head of research at Jadwa Investment in Saudi Arabia. "However, the single currency needs political support from all parties involved to ensure success and at the moment we're not really seeing that." Saudi Arabia, Kuwait, Bahrain and Qatar have all agreed to move ahead with proposals to launch a single currency in the region despite the absence of the UAE and Oman from the plans.

The original deadline of this year for the introduction of the GCC common currency has been missed. A refusal by officials to schedule a new timetable for the introduction of the currency suggested a lack of momentum behind the plans, said Mr Gamble. A desire to learn lessons from the sovereign debt crisis that crippled Greece in May has already prompted GCC states to reflect on the pitfalls any regional union must avoid.

The turmoil prompted a ?110 billion (Dh512.71bn) EU bailout of the southern European country and the agreement to a ?750bn emergency package to protect the euro. "There's different political horse trading going on," said Tudor Allin-Khan, the chief economist at HC Brokerage in Dubai. "I'm sure what's happened in Europe has affected the planning by raising concerns about what would happen if one country is weaker than another and requires financial help."

Mr Allin-Khan said the benefit of launching a single currency that is likely to be initially linked to the US dollar was uncertain when existing currencies were already pegged to the greenback. The decision to base the headquarters of the new regional central bank in Riyadh could grate on some member states as they vie to establish themselves as independent financial centres, he said. The latest meeting on Monday was intended to address efforts to prepare the organisational structure and institutional framework for the monetary council, the forerunner of the union's central bank, Sheikh Salem Abdulaziz Al Sabah, the governor of the central bank of Kuwait governor said in a statement on the Kuwait news agency website.

Officials aimed to strengthen co-operation among central banks on monetary and exchange rate policies of national currencies before the launch of the Gulf central bank, Sheikh Salem said. John Sfakianakis, the chief economist at Banque Saudi Fransi, said he believed the political will to establish the union still existed. "It's more or less business as usual," Mr Sfakianakis said. "The consensus in the remaining states is still there and they're pushing ahead with technicalities."

The UAE has repeatedly ruled out the prospect of the country returning to the process in the near term after opting out of the plans in May last year. But GCC representatives have frequently indicated the door could remain open for the UAE. Most recently, Abdulrahman al Attiyah, the secretary general of the GCC, said last month the country's presence would be economically and politically beneficial.

Further planning discussions will be held at the GCC summit in Abu Dhabi in December. [e-mail]