Riyadh: Arab leaders gather on Tuesday to try to agree on a location for a regional central bank, which some diplomats said would mostly likely be based in Saudi Arabia or the UAE.
"The circle is narrowing from four to two countries—Saudi Arabia and the UAE," said on senior Gulf official. "There are intense efforts to reach a final agreement. The leaders would like to make a solemn announcement about this."
The heads of state are meeting in Riyadh and four of the five countries that are planning to adopt the common currency, Saudi Arabia, the UAE, Qatar and Bahrain, are lobbying to host the bank, which would set monetary policy for the region.
Central bank governors failed to agree on the location of the bank at a meeting last month.
The drive to create a unified currency and drop existing pegs to the dollar has waned and Gulf central banks have increasingly acted independently of each other, adopting divergent measures to solve liquidity problems as they deal with the global financial crisis.
"You need to make the simple decisions that have been holding things back," said Marios Maratheftis, chief regional economist at Standard Chartered Plc. "If the location of the central bank is resolved, it will be a very significant breakthrough."
Saudi Arabia, the Arab world's largest economy, is vying with the UAE, the expatriate hub of the region, to host the bank. Also in the running are Bahrain and Qatar.
"The biggest economy is of course Saudi Arabia, so that gives it some kind of advantage, and the UAE's closeness to international markets also gives it a strong case," said Tim Fox, chief economist at Emirates NBD.
Qatar and Bahrain would be too small to be in the picture, Fox said.
Maratheftis said Bahrain or Qatar may have a chance as a "compromise option" if no decision can be made between the two largest economies.
Members of the six-nation Gulf Cooperation Council, with the exception of Kuwait, peg their currencies to the dollar.
Saudi Arabia, Kuwait, Bahrain, Qatar, the UAE and Oman agreed in 2001 to form a European Union-style monetary union by 2010 to boost regional trade. Oman pulled out in 2007. The deadline was dropped in March and a new deadline may be agreed at tomorrow's meeting.
The parliaments of the GCC countries have yet to ratify the monetary union agreement and many technical issues such as the exchange rate policy remain unresolved.