GCC Summit in Muscat crucial for the single currency plan

The GCC countries have made good progress towards introducing a single currency as the specialised committees have almost sorted out the technical issues.

The committees have already submitted their recommendations to the next GCC Summit in Muscat, which is due later this month.

Yet, there are some minor issues that have not been decided by the technical committees or at the ministerial meetings.

These issues include the location of the GCC central bank headquarters and the single currency's name. They are minor issues, compared to the main topics that have already been agreed on.

These key topics include currency reserves, annual budget deficits and the percentage of foreign debt in relation to the Gross Domestic Product (GDP), which require adjusting of financial and monetary situations in line with the requirements of the single currency.

Minor issues

Yet the problem is that such minor issues are usually exaggerated.

The place of the bank's headquarters means nothing to the hosting country because the proposed GCC Central Bank, just like the Central European Bank, will be an independent authority not subject to any member country's influence.

The bank will make its decisions upon an agreement by all member states and in a professional manner. Also, the bank's presidency will be held in rotation.

Regarding the name of the single currency, I recall the suggestion of a former governor of the UAE Central Bank, the late Abdul Malek Al Hamar, on "Dirham" or "Dinar" because they were mentioned in the Quran.

There are many ways to tackle such minor issues, which have regretfully hindered the implementation of important agreements. Among these is the implementation of unified customs tariff and Gulf Common Market agreement.

Economic cooperation in the Gulf has reached a level that necessitates a single currency without which the GCC economies will not have the flexibility to deal with the required economic and monetary changes - especially in view of the global financial crisis.

For instance, the GCC countries should have raised interest rates to combat inflation, which reached unprecedented levels in the past three years. On the contrary, the GCC central banks cut the interest rates following in the footsteps of the US Central Bank until last October. Such procedures have had a negative impact, which has in turn deepened the repercussion of the global economic downturn on GCC economies.

Negative consequences

If GCC currencies are de-pegged from the US dollar, their interest rates would have been raised to meet the requirements of their economic conditions, which would also have led to a decline in inflation rates, and consequently, in the prices of commodities and cost of living.

The negative consequences of the global economic meltdown GCC economies would have been less. Due to these reasons, the GCC countries have a historic chance that should not be missed to endorse the single currency and issue it by the specified date and overcome the minor issues.

The single currency will allow the GCC countries to enjoy complete independence for its monetary and financial policies and utilise it in serving the GCC economies. A single currency not pegged to an international currency is a necessary instrument for the Gulf region's growth.

There is still hope that the GCC leaders will resolve the currency issue since it is before the GCC Summit.

Dr Mohammad Al Asoomi is a UAE economic expert.