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By Mike Caggeso
Seeking haven from the region’s soaring inflation and the falling U.S. dollar, Gulf States Saudi Arabia, Qatar and the United Arab Emirates are considering unifying under a single currency, but they may be ditching the euro as their model.
“GCC countries might not follow the example of the euro,” the U.A.E.’s central bank governor, Sultan bin Nasser al-Suwaidi, told reporters yesterday (Monday), Bloomberg reported.
Qatar prime minister, Sheikh Hamad bin Jassim bin Jabr al-Thani, is also a proponent of a single currency, citing rising prices. He urged Gulf States to set aside old rifts and unite under one currency,.
Sheikh Hamad has considerable sway, as his country is the current chair of the Gulf Cooperation Council (GCC), a six-nation economic and political trade bloc formed in 1981 that includes Qatar, Saudi Arabia. U.A.E., Oman, Bahrain and Kuwait. One of the GCC’s stated goals is to produce a single currency, already named the Khaleeji [Arabic for “of the gulf”], by 2010.
While Sheikh Hamad and al-Suwaidi agree on the goal, they face major dissent from some GCC members. Oman remains uncommitted to the single currency and in May, Kuwait broke ranks by ditching the dollar peg for its currency. Reason: The weak dollar is spiking imports and inflation.
But Sheikh Hamad plans to keep the process moving forward.
“We are thinking about it and in talks… we are discussing with Gulf countries, but there is no consensus,” said Sheikh Hamad. “We prefer always to act with all the GCC countries.”
The Trouble with Euro Guidelines
One of the problematic criteria for euro membership, as laid out in the European Union’s Maastricht Treaty, is keeping inflation within 1.5% of the 12-month average of the three EU nations with the lowest rate.
While those guidelines may be fair in mainland Europe, it’s a standard too strict and difficult to control in the Gulf, where the economic growth and populations are soaring… and that’s on top of record oil prices.
Bloomberg reported that inflation in Saudi Arabia accelerated a record 7% in January. More so, the Bank of Abu Dhabi issued a report expecting U.A.E. inflation to clock in at 10.9%, up from 9.3% from a year earlier.
However, Qatar is suffering the worst, as its fourth-quarter inflation was 13.74%.
There are also other issues to address in addition to inflation before the introduction of a common currency. The six member states will need to work together to eliminate foreign-exchange transaction costs, “improve the efficiency of capital flows between our economies,” and unify common market legislation, al-Suwaidi said.
“Before we have a common market working at its expected efficiency level, it would not make sense to have a single currency,” he added.
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