GCC single currency stalls...

As far back as 2003, the Gulf Cooperation council (GCC) – composed of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE – started taking steps towards creating a unified currency. It is thought that such a move would aid economic integration and compliment moves already taken to ensure the free movement of goods, labour and capital across national boundaries. Collaboration en masse would also afford a degree of economic protection to individual countries. A date for monetary union was set for 2010, and all six countries pegged their currencies to the US dollar in order to help fulfil what economists call “convergence criteria”. The hope was that inflation, interest rates and current accounts could be brought into line, ensuring a smooth transition into the new currency.

That looks unlikely now, as the dollar has been under sustained downward pressure following the turmoil in the American credit markets this summer. Whilst many observers have drawn attention to the “decoupling” of developed and developing economies – the apparent resilience of emerging markets to financial dysfunction in America and Europe – others have noted more subtle manifestations of global economic integration. Events in Wall Street still have consequences for emerging markets such as the GCC, even if they have been slower to assert themselves.

UAE Central Bank Governor Sultan Nasser Al-Suweidi has recently stated that the GCC states are likely to miss the 2010 deadline for the single currency by more than five years. Oman has already pulled out of joining in 2010, arguing that it could not meet the budget deficit target due to the need for increased domestic spending on employment. Furthermore, Kuwait has depegged its currency from the weakening US dollar, arguing that it was suffering from unreasonable levels of inflation. On the other hand, Qatar Finance Minister Youssef Hussein Kamal defended the pegging policy in an interview with Gulf Times, arguing that a weak dollar means more competitive exports:

"Why should I change the peg when 100% of my exports and products are in the US dollar? […] My products look cheaper compared with the non-dollar-pegged products. Otherwise, I cannot sell them."

How will the rest of the GCC play it? Only time will tell, but at this point a single currency looks a long way off.