GCC currency union seen on track for 2010

[ali ahmad]

RIYADH: Gulf Arab countries are on track to adopt a single currency in 2010 and establish a monetary union, a Gulf official said yesterday.

"At a meeting in Abu Dhabi a few days ago the issue was discussed in detail, concerning its look, denominations, and even its name," HE Abdul Rahman al-Attiyah, secretary-general of the GCC said.

"Now we have moved from the stage of establishing the criteria to the stage of implementation, paving the way for issuing the single currency in 2010 and setting up the monetary union," he told reporters after a meeting of GCC foreign ministers in the Saudi city of Jeddah.

The GCC has already set up a customs union. Officials say the criteria must still be approved by finance ministers before heads of state ratify the plans.

The monetary union criteria would involve levels of government debt, government deficit, inflation, interest rates and foreign currency reserves.

"We need a mechanism to monitor compliance over the next three years. That is the main challenge, as well as the issue of political symbolism," one Gulf economic official said.

The six nations face awkward decisions affecting individual state sovereignty on issues such as where to house a central bank overseeing the single currency, economists say.

The UAE wants to host it in Abu Dhabi, though Saudi Arabia is the largest GCC state.

Most of the six peg their national currencies to the US dollar. Kuwait’s dinar trades in a narrow band and the UAE plans to convert 10% of its mostly dollar-denominated currency reserves into euros and gold.

http://www.geo.tv/geonews/details.asp?id=130465

 

[ali ahmad]

Work in the third stage began with practical steps towards launching of the unified currency, including naming of the currency, determining its denominations, launching mechanism and exchange regulation. This stage will culminate with the establishment of the GCC Central Bank, latest by January 1, 2010.

khaleeg times

 

[sigatoka]

1. RIYADH: Gulf Arab countries are on track to adopt a single currency in 2010 and establish a monetary union, a Gulf official said yesterday.

2. The monetary union criteria would involve levels of government debt, government deficit, inflation, interest rates and foreign currency reserves.

1. Good news because will improve trade and deepend relations.

2. These are not the only issues, a monetary union ties all member nations to a single currency which can cause sevre problems. For e.g. the Euro interest rate is too high for Germany, Italy, France but too low Spain, Poland. The problem is that a common currency ties in everyone to one interest rate.

Therefore to reduce the negative impact, the factors of production (capital and labour) must be allowed to move freely. For e.g. in the U.S. if one state is booming and facing inflationary pressures and another is in recession (the Fed. cant set two rates for each of them) labour and capital is free to move into the booming state from the recession state.

If this Currency Union is to be successful, the GCC must first remove all capital restrictions between themselves, dramatically liberalise labour movement and force common inflation targets otherwise the Currency Union will not be stable.