MUSCAT // Saudi Arabia and three other Gulf states will proceed with their monetary union plan and the location of a Gulf central bank would not be open for renegotiation, the Saudi finance minister said. "It is not derailed, it will continue. The monetary union will proceed as planned," Ibrahim al Assaf told Reuters in an interview in Oman on Saturday, less than two weeks after the UAE abandoned the single currency project.
"As long as we are moving in the right direction, this is the most important." The UAE, the second-largest Arab economy, broke ranks with Saudi Arabia, Kuwait, Qatar and Bahrain by dropping out of the single currency plan in protest over the decision to base the Gulf central bank in the Saudi capital, Riyadh. Asked if the location of the central bank was open for renegotiation, Mr al Assaf said: "No. There is a decision that has been taken by our leaders."
The UAE's foreign minister told Reuters earlier this month the Gulf state would consider rejoining the Gulf monetary union if the terms change and its neighbours agree to allow a joint central bank to be based in the country. Sheikh Abdullah bin Zayed al Nahayan said the open economy of the UAE, a federation of seven emirates including Abu Dhabi and Dubai, was the most-suited in the Gulf region for the central bank.
The four remaining participants are due to meet on June 7 to sign the monetary union agreement, the Gulf Cooperation Council (GCC) secretary-general said on Saturday. Analysts have questioned whether the withdrawal of the UAE, the Arab world's largest economy after Saudi Arabia, could derail the long-troubled project. They said the move was a protest against Saudi dominance in Gulf decision-making.
Mr Al Assaf said one of the key benefits of the single currency would be to reduce transaction costs between the member countries in areas such as trade and tourism. "You have the cost of transactions when you trade and also you have built in risk of exchange rate variations. Even if you have now most of the currencies are pegged to the dollar, that will not necessarily be the case in the future," Mr al Assaf said.
"Having a single currency will eliminate the risk and that tremendously influences decisions to invest, to deposit funds, to do any type of trade." The single currency would also enable the world's biggest oil exporting region to have a "major currency bloc", he said. In 2001, the six members of the GCC - a loose political and economic alliance - agreed to set up a monetary union like that of the EU.
Oman dropped out of the plan in 2006 and earlier this year, the GCC abandoned an initial 2010 deadline for issuing the common notes and coins, saying a joint monetary council would determine a new timetable for issuance. The four remaining countries have agreed to ratify by December a monetary union deal that their heads of state agreed on late last year. *Reuters
