Gulf Arab oil exporters should learn from the Eurozone debt crisis but press on with their own monetary union project, a senior official from Qatar’s central bank said on Thursday.
“I think that the GCC (Gulf Cooperation Council) countries should benefit from the Euro experience and continue with the GCC monetary union project without a delay,” Khalid Alkhater, director of Research and Monetary Policy at the bank, told Reuters.
“The monetary union is a strategic long-term project for these countries, not only economically, but it should be also politically,” he said in rare public comments by a Gulf central bank official.
“…The costs of not establishing it could be very high for the GCC countries…in the future.”
The creation of monetary union became the primary objective of the six GCC members in the early 1980s. Four of them – Qatar, Saudi Arabia, Kuwait and Bahrain – formed a joint monetary council and a forerunner to a Gulf central bank in March 2010.
But the monetary council has since kept a low profile, and most observers believe any unification of the region’s currencies will not occur for at least five years.
They cite the Euro crisis and a lack of political will following the UAE’s withdrawal from the project in 2009 among the main reasons. The sixth GCC state, Oman, pulled out in 2006.
The absence of the UAE, seen as providing an economic counterbalance to Saudi Arabia, is an obstacle to further progress towards monetary union in the Gulf, where most countries peg their currencies to the dollar, analysts have said.
Alkhater, who is not a member of the Gulf monetary council, said that the GCC states had more in common than Eurozone states, sharing the same culture and language and facing similar political and economic challenges.
“We have six countries that are homogeneous almost in all domains. They share similar production structures, which mean that they are all subject to symmetric shocks,” he said in an e-mail response to Reuters’ questions.
“Therefore … the GCC countries are better qualified to satisfy the optimum currency area criteria, and therefore to establish a monetary union, than the Eurozone.”
A Gulf official has told Reuters that the countries taking part in the single currency project are still dealing with organising the institutions and there was no decision yet on any programme or timings.
“Now, we have a call by some countries (the Saudi Kingdom) for political union, therefore, the monetary union can serve as an intermediate step in achieving that goal,” Alkhater said.
Social unrest in the Middle East, which also hit Bahrain and Oman, and tensions over Iran’s disputed nuclear programme triggered a surprising Saudi Arabia’s proposal in December to create a Gulf Union.
But so far the plan has run into worries of some countries about increasing domination of Riyadh, the main force behind political and economic integration in the region, which controls about 30 per cent of proven global oil reserves.
A Reuters poll this month showed 14 of 15 analysts did not expect the Gulf to launch a single currency in the next five years. Eight out of 10 said the UAE’s return to the project in the future was unlikely or very unlikely.