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GCC single currency may retain dollar peg, says Samba Financial Group
Source: BI-ME , Author: BI-ME staff
Posted: Thu October 15, 2009 11:10 am
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SAUDI ARABIA.  Four Gulf Arab states that plan to establish a joint central bank may initially peg their single currency to the dollar, reported Bloomberg, citing Howard Handy, the chief economist at Samba Financial Group, Saudi Arabia’s second-largest bank.

Before the introduction of the unified currency “we do not expect any changes to GCC exchange rate regimes, including in those countries currently opted out of monetary union,” Handy told Bloomberg.

“In the first instance, we also expect that the single currency will retain the dollar peg.”

Gulf Arab leaders in December approved an agreement to create a central bank and single currency for the region to boost trade and strengthen monetary policy.

A single currency would allow the Gulf states to stop pegging their currencies to the dollar and implement independent monetary policy.

Kuwait, Saudi Arabia, Qatar and Bahrain in June signed an accord to create a joint monetary union council, a prelude to establishing a Gulf central bank and launching a monetary union and single currency.

The remaining two members of the Gulf Cooperation Council (GCC), the United Arab Emirates and Oman, did not sign after deciding to withdraw from the project.

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

Saudi Arabia “hasn’t lost hope” that Oman and the United Arab Emirates will re-join the planned monetary union, Saudi central bank governor Muhammad al-Jasser said on September 1.

The GCC states have set 2010 as the target to launch the monetary union and single currency, but many experts believe that target is too ambitious and unrealistic.

“The January 2010 target for a single currency is challenging, and more time will probably be needed to finalize the operational framework of the central bank, harmonize statistics, and improve regional payment systems,” Handy said.

 “Currency union should be seen as an evolutionary process rather than an abrupt break with the past.”

MIDDLE EAST BUSINESS COMMENT & ANALYSIS

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