Bahrain, one of four Gulf Arab states working to set up a single currency, is monitoring concern over the viability of the euro, Sheikh Mohammed bin Essa Al-Khalifa chief executive of the country’s Economic Development Board said.
“It is still a long-term goal and the concept is still in our sights, but we are watching as the euro goes through a crisis,” Al-Khalifa said in e-mailed comment. “What we need in the Gulf is a currency with sound fundamentals.” Al- Khalifa spoke at an International Institute for Strategic Studies conference in Bahrain.
Saudi Arabia, Kuwait, Qatar and Bahrain on March 30 took an initial step toward a single currency when their central bank governors held the first meeting of the Monetary Council, a precursor to a united central bank. Kuwait is pegged to a basket of currencies while the other three countries are pegged to the dollar. A unified central bank will give the Gulf states control over monetary policy which is now dictated by the Federal Reserve, Al-Khalifa said.
“Should stresses in Greece or elsewhere prolong concern about the viability of the euro then this could trigger a rethink within the GCC,” Paul Gamble head of research at Riyadh-based Jadwa Investment Co. said in a May 8 report.
The European Central Bank model has been used as a guide for the Gulf states on technical issues and policymakers have received advice from the Frankfurt-based central bank, according to Jadwa Investment Co.
Gulf countries agreed on a single currency in 2001, saying it would help integrate their economies, and the original timetable would have seen the new monetary unit in place this year. The deadline was missed after the financial crisis and the U.A.E. and Oman pulled out.
Central Bank Governors of the four countries will meet again at the end of this month. Saudi Central Bank Governor Muhammad al-Jasser is the first chairman of the council, which must draft a road map for a plan that Kuwait says may take a decade to complete. Bahrain was given the deputy role. The Gulf Cooperation Council is a six-member political and economic bloc that includes the United Arab Emirates and Oman, which have both pulled out of the currency union.
The euro last week fell to its lowest level since the collapse of Lehman Brothers Holdings Inc. on concern that the 16-nation currency may be headed for disintegration. The shared currency fell for a fourth week versus the dollar and a third week versus the yen, the longest losing streaks since February, as German Chancellor Angela Merkel said that Europe is in a “very, very serious situation” despite a rescue package for the region’s most indebted nations.
The U.A.E., which pulled out in May after Riyadh was selected as the location for the Monetary Council, is still “committed to the single currency,” though it sees ending trade restrictions in the region as the priority, central bank Governor Sultan bin Nasser al-Suwaidi said March 15 in an interview.