GCC able to form currency union by 2010: QCB Chief

GCC able to form currency union by 2010: QCB chiefPublished: Monday, 26 May, 2008, 02:01 AM Doha Time


Sheikh Abdullah addressing the 24th meeting of technical committee of the GCC currency forum yesterday
By Santhosh V Perumal
Doha: The head of Qatar’s banking regulator yesterday expressed the hope that GCC countries will be able to implement the common currency by the 2010 deadline.
“I always say there is no delay,” Qatar Central Bank governor Sheikh Abdullah bin Saud al-Thani said on the sidelines of a meeting of the technical committee of the GCC currency forum. The forum is preparing a roadmap for the 46th extraordinary meeting of the GCC central bank governors to be held next month here.
Sheikh Abdullah’s statement comes in the backdrop of reports that the GCC may miss the deadline for the common currency union because of simmering differences over how to tackle inflation and fears of losing control over monetary and exchange rate policies.
In April, GCC central bank governors announced that they would stick to the 2010 deadline for the monetary union. They scheduled a special meeting in June to discuss legal reforms needed to turn the single currency into a reality.
The road to a unified currency - which has the potential to be the second important denomination after the euro since the Gulf bloc controls around 45% of the world’s known oil reserves - hinges on five-point criteria, including the most important aspect of inflation, which should be within 2% of the weighted average for the region.
However prices have been skyrocketing in Qatar with inflation now at near 14% due to various factors, including higher rents and food prices as well as the currency’s peg to the dollar.
An official, who wished not to be identified, said the concerns over inflation have been “misplaced” since rising prices were no longer country-specific but has become a regional as well as global issue.
Last year, inflation across the Gulf reached an average of 7.4%, compared with 4.2% in the preceding five years.
Other criteria for the common currency union include capping budget deficits at 3% of gross domestic product, public debt at 60% of GDP, interest rates not exceeding the average of the lowest three states by more than 2%. GCC members are required to have foreign exchange reserves to cover four to six months of imports to form the currency union.
Global credit rating agency Fitch recently said the GCC region met many of the criteria, which defined an optimum currency area.
Addressing the meeting, Sheikh Abdullah said the technical committee of the GCC currency forum has a very basic and important role to play. Its recommendations are crucial on pivotal issues pertaining to the unification of the currency.
The GCC, which has already formed a common market, will stand to gain from common currency as it would reduce transaction costs and ease price comparisons, according to Fitch.
Sheikh Abdullah said the technical committee should focus on several legal, operational and establishment frameworks for speeding up the formation of the common currency.
On the fears over losing monetary policy independence, Fitch said it would be minimal as states have already surrendered control of monetary policy by pegging their individual currencies to the dollar.
“Indeed, if the eventual common currency were more flexible against other world currencies, it would allow the Gulf more scope to set monetary policy to suit conditions in the region and a more flexible currency would also help the region deal with external shocks,” Fitch added.