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Banking

Monetary union: Single Gulf currency plan hits snag

Doubts have surfaced about the feasibility of monetary union after a tense meeting of central bankers.

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A meeting held by Co-operation Council for the Arab States of the Gulf (GCC) central bank governors in the first week of April to discuss a planned monetary union ended with little achieved. As a result, many doubt that a single currency can be launched in Kuwait, Saudi Arabia, Oman, Qatar, Bahrain and the UAE by 2010 as the GCC envisaged.

The concept of a single currency emerged in the belief that it would lead to such benefits as greater intra-regional trade and investment, and the promotion and facilitation of flows. In 2003, the council set 2010 as the target year to reach economic convergence and it outlined the criteria for creating a single currency. "When the deadline was set, the GCC left itself sufficient time to carry out the preparatory work that was required to bring the currency into effect and for all of the states to meet the convergence criteria," says Simon Williams, an economist for HSBC Middle East. "But, the project seems to have lost momentum, not gained it, as the deadline has approached."

Divergence emerging

GCC members’ currencies are pegged to the dollar and have similar levels of interest rates.

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