Yves Mersch
The GCC single currency to be launched in 2010 will be pegged to only one currency - but it may not necessarily be the U.S. dollar, Sultan bin Nasser Al Suwaidi, UAE Central Bank governor said yesterday.

Equally, the GCC countries have the political will to complete monetary union by 2010, he added.

"Initially, the single GCC currency will be pegged to one currency but which one we cannot say yet as things will change until 2010. However, it will be one currency peg and not a basket of currency," Al Suwaidi told Gulf News.

"We are confident that with the political will we can achieve the GCC monetary union by 2010," the governor told a gathering at the Zayed Centre for Coordination and Follow-Up, after a lecture by Yves Mersch, governor, Central Bank of Luxembourg. The GCC will take a leaf out of the European Union book.

"We will not resort to existing instruments, rather will create new instruments, but we have to think of a lot of instruments and develop them on time."

However, Mersch differed saying that if a currency is pegged to another currency it could pose problems.

"If you peg it to some currency, you don't set interest rates and your regional situation is not taken into account. It should reflect the current trade links... where the main trading partners are. At present, 34 per cent of non-oil trade of GCC is with Europe," he said.

Mersch said while the GCC countries are more homogenous in terms of culture and language, economic integration is far less advanced than in Europe. Intra-regional exports represent less than 7 per cent of total GCC exports, but the figure rises to 34 per cent in non-oil exports.

"But this remains lower than what is in Europe which is about 51 per cent. However, all GCC governments are committed to diversifying their economies and favour regional trade."

Also, GCC members are doing well in three out of four criteria of the Maastricht convergence criteria, namely exchange rates, inflation and interest rates. In the area of exchange rate stability, the track record of GCC is impressive and probably unequalled.

"The challenges facing GCC may seem less daunting than those the EU faced 10 or 15 years ago. With sufficient political support these problems can be overcome," he said.