Gulf on course for a common currency: report

Middle East News.Net
Tuesday 19th August, 2008 (IANS)

The Gulf Cooperation Council (GCC) is on schedule to meet the key requirements by 2010 for a common currency, according to a report.

The report, 'An Assessment of Progress Towards GCC Monetary Union', released by the Dubai International Financial Centre (DIFC) here Tuesday, said the GCC was on schedule to achieve the convergence criteria for the monetary union that were endorsed by the Supreme Council of the GCC at its 27th session held in Riyadh in 2006.

Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE) comprise the GCC.

Oman, however, has said it would join the proposed monetary union at a later date.

Except for Kuwait, the currencies of GCC countries are pegged to the US dollar.

The DIFC report has identified four key policy issues that needed to be addressed for the successful launch of the GCC monetary union.

'Firstly, there needs to be an institutional and governance framework to ensure smooth, transparent and effective decisions on the conduct of monetary policy and other central bank policies, including the mode of operation of the GCC central bank,' it said.

Secondly, inflation should be the priority item on the policy agenda.

'There is need for a change in monetary policy towards inflation targeting, with monetary policy geared to maintaining inflation within an announced target range,' the report said.

Next, the GCC countries should invest in building their statistical capacity, in order to provide harmonised, comparable economic and financial data, to support the monetary union and the Gulf common market.

And finally, if the monetary union was to be achieved and was to serve its purpose, it needs to be supported by investments in financial infrastructure, payment systems, the development and linkage of money markets and capital markets to ensure a uniform interest rate and the swift transfer of funds throughout the GCC, according to the DIFC.

'The GMU (GCC monetary union) will strengthen the commitment of GCC countries to regional economic integration,' it stated.

'The GMU should be the central policy anchor, extending the benefits of currency stability to financial markets, industries and citizens, by fostering more intense trade relationships, linking the capital markets and attracting international capital,' the report said.

DIFC is an onshore hub for global finance and bridges the time gap between the financial centres of Hong Kong and London.

Over 650 firms are registered with the DIFC.

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