Gulf states to launch their own petrodollar, the 'gulfo'
AMBROSE EVANS-PRITCHARD
December 19, 2009
LONDON: The Arab states of the Persian Gulf have agreed to launch a single currency modelled on the euro, hoping to blaze a trail towards a pan-Arab monetary union.
''The Gulf monetary union pact has come into effect,'' said the Kuwaiti Finance Minister, Mustafa al-Shamali, speaking at a Gulf Co-operation Council summit meeting in Kuwait City. The move will give the hyper-rich club of oil exporters a petro-currency of its own, greatly increasing its influence in the global exchange and capital markets and potentially displacing the US dollar as the pricing currency for oil contracts. Between them the Gulf countries amount to a regional superpower with a gross domestic product of $US1.2 trillion ($1.3 trillion), some 40 per cent of the world's proven oil reserves, and financial clout equal to that of China.
Saudi Arabia, Kuwait, Bahrain, and Qatar are to launch the first phase of the single currency next year, creating a Gulf Monetary Council that will evolve quickly into a full-fledged central bank.
The United Arab Emirates is staying out for now - irked that the bank will be located in Riyadh, at the insistence of Saudi Arabia's King Abdullah, rather than in Abu Dhabi. The UAE is expected join later, along with Oman.
The Gulf states remain divided over the wisdom of anchoring their economies to the US dollar. The Gulf currency - dubbed the ''gulfo'' - is likely to track a global exchange basket and may ultimately float as a regional reserve currency in its own right.
''The US dollar has failed. We need to delink,'' said Nahed Taher, chief executive of Bahrain's Gulf One Investment Bank.
The project is inspired by Europe's monetary union, seen as a huge success in the Arab world. But there are concerns that the region is trying to run before it can walk.
Europe took 40 years to reach the point where it felt ready to launch a currency.
Bahrain's Foreign Minister, Sheikh Khalid Bin Ahmad Al Kalifa, said the project would not work unless Gulf countries break down basic barriers to trade and capital flows. At the moment, trucks sit paralysed at border posts for days awaiting entry clearance, and there is almost no labour mobility between states.
''The single currency should come last. We need to co-ordinate our economic policies and build up common infrastructure as a first step,'' Sheikh Khalid said.
There is a logic to an Arab currency. The region speaks one language, has the unifying creed of ''Umma Wahida'' or One Nation from the Koran, and has never torn itself apart in wars in the way Europe has.
But hurdles are formidable. While the eurozone is a club of rough equals - with Germany, France, Italy and Spain each holding two votes on the European Central Bank council - the gulf currency will be dominated by the Saudis. The risk is that other countries will feel like satellites.
But in a sign of willingness to co-operate, the council also agreed to create a joint military strike force, akin to the EU's rapid reaction force. This is a breakthrough after years of deadlock on defence co-operation.
Telegraph, London
First Step Towards a Pan-Arab Union: the Gulfo
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