Four Gulf states sign pact on monetary union

After doubts that the Gulf states could create a single currency by 2010, the Gulf Cooperation Council (GCC) finally took a step forward with four members states signing a pact in Riyadh yesterday, 7 June 2009, to create a single currency union, a GCC spokesman said.

Foreign ministers from Bahrain, Kuwait, Qatar and Saudi Arabia - four of the six-stron GCC - have agreed to set up a monetary council in Riyadh this year as a precursor to the ultimate goal of establishing a common currency, the spokesman said. This leaves Oman and the UAE holding out against the proposed monetary union.

Oman has been explicit in its desire not to join the monetary union, while clarifying that it would not obstruct such a union among other GCC states, despite the issue requiring total unanimity. (See: Oman opts out of the Gulf's single currency monetary plan)

The United Arab Emirates, the Gulf bloc's second largest economy, pulled out last month after the GCC secretariat announced the proposed GCC Central Bank at its headquarters in Riyadh. However, two days later, Sultan Bin Saeed Al Mansouri, UAE's minister of economy said that UAE may reconsider its decision if the GCC reconsiders its decision to have the GCC Central Bank in Abu Dhabi.

Saudi Arabia accounts for 47 per cent of the GCC economy, dominates the region on account of being OPEC's largest oil exporter and having the world's largest proven oil reserves, which accounted gfor its claims for the GCC Central bank, being located in Riyadh, its capital.

The UAE accounts for 23 per cent of the GCC economy, but has remained a powerful force behind economic changes and the transformation of the GCC. It was the first member within the group to moot the formation of the central bank for the Gulf region.

In December 2007, the GCC announced plans to start the single currency union by 1 January  2010 (See: Gulf states launch common market; plan common currency by 2010) though financial markets do not expect the common currency to be implemented by the deadline, though they think it to be feasible by around 2013.

Following in the foot steps of Euope's 16-country eurozone where the euro is the sole currency, and with the dollar in retreat and China trying to push yaun-trade among the Asean bloc, seem to have added an impetus to the GCC's desire to hasten its move for a common currency for the Gulf area.

Declining oil prices since August 2008. in the wake of the global financial crisis with weak demand, oil production cuts, tighter credit terms by buyers may motivate the GCC to push the common currency platform much faster.