The four Persian Gulf states planning a single currency will temporarily halt their preparations because of the debt crisis facing the euro region, said Sheikh Mohammed bin Essa al-Khalifa, chief executive of Bahrain’s Economic Development Board.
“It will take a bit more time to see how this euro thing plays out and what lessons can be learned,” al-Khalifa said in an interview at Bloomberg’s headquarters in New York. “You can’t afford to get this wrong.”
Saudi Arabia, Kuwait, Qatar and Bahrain took an initial step toward a single currency on March 30 when their central bank governors held the first meeting of the Monetary Council, a precursor to a united central bank. Kuwait’s dinar is pegged to a basket of currencies while the other three countries have a peg to the dollar.
The euro touched a four-year low against the dollar on June 7 and has dropped more than 16 percent this year as the fiscal crisis that started in Greece made money managers wary that some debt-swamped nations might default, or even revert to old currencies. The European Union has pledged a 750 billion-euro ($900 billion) aid package to prevent a debt spiral that could spread from Greece to Spain and Italy.
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 United Arab Emirates and Oman pulled out amid the financial crisis.
“The concept of a single currency is an important one and is appealing because as our economy develops and matures, we need more levers to control that,” said al-Khalifa, who was in New York to meet with U.S. companies. “Today our currency policy is essentially set” by the U.S. Federal Reserve.
Saudi Arabia’s central bank Governor Muhammad al-Jasser, who’s also chairman of the Monetary Council that’s responsible for developing the currency, said on May 24 that the single currency plans haven’t changed because of the European debt crisis. The 16-nation euro currency has dropped 3.2 percent since then.
The economy of Bahrain, the smallest Gulf Arab kingdom, may expand 4 percent this year, compared with 3.2 percent in 2009, Central Bank Governor Rasheed al-Maraj said on May 4, as the global economic recovery boosts oil prices.
Al-Khalifa said his country has avoided the worst effects of the real estate bubble bursting in Dubai, though some developers in Bahrain have put projects on hold.
The government is seeking investors for the Salam Beach Reso and Spa after construction stopped in January last year, according to Middle East Economic Digest.
Bahrain is looking at a “consortium” of investors for the project, he said. “It wouldn’t directly be the government. We’ve had a more balanced approach” than Dubai, he said.