Feb. 25 (Bloomberg) -- Gulf Arab states planning to form a monetary union with a single currency may abandon the euro as their model as they struggle to meet economic-convergence criteria, the United Arab Emirates central bank governor said.

``GCC countries might not follow the example of the euro,'' Sultan bin Nasser al-Suwaidi told a conference in Abu Dhabi today. Trying to follow criteria used by the European Union in its Maastricht Treaty is causing ``some problems'' for the six Gulf Cooperation Council states, he said, without specifying.

GCC states including Saudi Arabia and the U.A.E. enlisted the EU's help in 2002 to develop plans to start a single currency by 2010 designed to boost regional trade. The plan was thrown into doubt in 2006 when Oman said it wouldn't be able to meet the deadline, citing unwillingness to be bound to spending targets. In May, Kuwait dropped the dinar's peg to the dollar, breaking ranks with the other GCC members, which have kept the link in preparation for the new currency.

Under the 1993 Maastricht Treaty, euro candidates need to keep inflation within 1.5 percentage points of the 12-month average of the three EU nations with the lowest rate. They must also hit targets for budget deficits, debt, interest rates and currency stability. The rules can only be changed by a unanimous vote of EU leaders.

`Big Problem'

``The big problem for the GCC seems to be inflation,'' Monica Malik, senior economist for EFG-Hermes Holding SAE, said in a phone interview from Dubai today. ``Maastricht rules on budget deficits make no sense while they're running surpluses from oil, so it would be better for them to develop their own criteria.''

Inflation in Saudi Arabia, the world's biggest oil exporter, accelerated to a record 7 percent in January as the cost of rents and food soared, the kingdom's Ministry of Economy and Planning said yesterday. The U.A.E. may say next month that 2007 inflation jumped to 10.9 percent from 9.3 percent a year earlier, according to National Bank of Abu Dhabi PJSC.

``The single currency is a long-term goal of the GCC,'' al- Suwaidi said today, without commenting on the 2010 deadline. The first step is for member states to eliminate foreign-exchange transaction costs, then to ``improve the efficiency of capital flows between our economies,'' and finally to unify legislation within a common market, he said.

The six GCC states, Saudi Arabia, Bahrain, Qatar, Oman, Kuwait and the U.A.E., agreed to form a common market this year, the council's Secretary-General Abdul Rahman al-Attiyah said Dec. 4. The common market will give Gulf citizens equal economic rights to buy stocks and property in each member state, he said.

``Before we have a common market working at its expected efficiency level, it would not make sense to have a single currency,'' al-Suwaidi said today.

To contact the reporters on this story: Matthew Brown in Abu Dhabi at mbrown42@bloomberg.net; Will McSheehy in Dubai at wmcsheehy@bloomberg.net

Last Updated: February 25, 2008 04:19 EST