Obstacles Envelop Launch of Gulf Single Currency
There have been several discussions on the launch of a single Gulf currency, its benefits to partner regions and integrating economies. The International Monetary Fund (IMF) approved of the single Gulf currency in 2001, wherein Saudi Arabia, Bahrain, Oman, Kuwait, Qatar and United Arab Emirates (UAE) were initial participants, with a completion deadline set for 2010.
The deadline was missed after the UAE and Oman pulled out. Nonetheless, if one has to go by current discussions, the single Gulf currency would most likely see the 'light of day' only by 2015.
In lieu of fast tracking the project, Kuwait, Saudi Arabia, Bahrain and Qatar announced the creation of a monetary council, a step toward establishing a shared currency. The board of the monetary council set a timetable for establishing a joint central bank and choosing a currency regime. The council was also expected to lay the foundation for a regional central bank and prepare the launch of a single Gulf currency.
However, despite moving at a significant pace, the single Gulf currency project has faced several hurdles in its development.
Kuwait is of the opinion that introducing the single currency may take up to 10 years The monetary union is seen proceeding at a slow pace due to a list of technical difficulties ahead, including rising power of economies such as Qatar, the European debt crisis that exposed problems in fiscal discipline, as well as lacking and timely economic data
The UAE, the second largest Arab economy and the Gulf trade hub, has no motivation to rejoin the monetary union unless it is on a more equal footing with Saudi Arabia. Oman has ruled out any comeback. The dominance of Saudi Arabia may prove problematic. Last year, Saudi Arabia's economy accounted for more than 67 percent of the currency union's gross domestic product. While the Kingdom will be instrumental in driving the integration process, it is difficult to see an equal relationship with smaller states. As a result, Qatar, whose economy is growing at a double-digit pace, may be less attracted to stay in the Saudi-dominated block.
Despite hurdles, analysts are optimistic that UAE and Oman will eventually join the monetary union once the single Gulf currency has been successfully launched. They have also advised considering the dollar peg to be the best fit for a single Gulf currency, at least in the initial stage, as other regimes would make budget oil revenues more volatile. Work is currently in progress on setting a 'road-map' for the project to meet the deadline of 2015.