The four remaining members of the proposed Gulf currency union met to agree on the creation of a monetary council Sunday night, sending a clear signal of their intention to push ahead with the project despite the UAE's withdrawal last month. The UAE pulled out in protest at not being chosen as the host for the monetary council. Instead, Riyadh was selected.
Sunday, foreign ministers from Kuwait, Qatar, Bahrain and Saudi Arabia met in Riyadh to sign the monetary union agreement, which has not undergone significant changes since the UAE withdrew from the process. Howard Handy, the chief economist at the Samba Financial Group in Riyadh, said recent disagreements over the location of the planned GCC central bank "may be a sort of wake-up call that everybody has to be on board; that if there is a setback, people need to be willing to get things back on track.
"But what's most important is that they integrate their economies, which they have showed progress on. The currency union is the ultimate culmination of this integration. And if that takes a bit longer, it doesn't worry me." Once signed, the agreement would still have to be ratified by each of the four governments of the remaining participants before it can be enacted. GCC officials have predicted that the monetary council will be in session before the end of the year.
The UAE's decision to pull out of the monetary union marks the latest in a series of setbacks for the project. In 2006, Oman decided to drop out, and in 2007 Kuwait decided to unilaterally de-peg its currency from the dollar. King Abdullah of Saudi Arabia was reported to have said two weeks ago that the kingdom remained open to reviewing elements of the monetary union plan that had created the dispute.
But UAE officials have since reaffirmed that they are still planning to withdraw from the proposed union and are not interested in negotiating with other GCC states about the possibility of re-entering. Leading up to the announcement about the location of the new monetary council, sources close to the negotiations said Abu Dhabi was the leading contender as host. However, officials within the GCC decided at the last minute on Riyadh.
Both the Central Bank Governor and the Minister of Economy have recently said that Abu Dhabi made a strong case for its right to host the monetary council, given its strong financial infrastructure and its open economy. Both also noted that the UAE submitted its application to host the council first and does not host any GCC institutions. "For the project to be a success, the Saudis have to show that these GCC institutions are truly inclusive; that they are genuinely interested in sharing the leadership," said Giyas Gokkent, the chief economist at National Bank of Abu Dhabi.
"There will probably be a currency union eventually which includes the UAE because it makes economic sense. But you will probably need to wait some time, to let some water pass under the bridge and let recent events fade from memory before the economic union will be possible." Although the currency project could still move forward with only four states, analysts said the UAE's decision not to participate dealt it a serious blow. Before the decision, the project had been thought to be progressing steadily, if slightly behind its original schedule.
"It's anybody's guess what will happen next. Over the past few months, the whole process has been so unpredictable," said one UAE economist. GCC foreign ministers were also set to meet representatives from Yemen over the possibility of increasing co-operation, according to the Saudi Press Agency. Yemeni officials have recently expressed interest in joining the GCC, even though the country's economy differs significantly from the oil exporters bordering the Gulf.