GCC common currency postponed
Members of the GCC have decided to delay the launch of the GCC common currency beyond the 1 January 2010 deadline. No date has been set for the launch.
No clear indication was given as to the reason of the postponement but it is thought that disagreements between GCC countries makes the launch of a common currency under such circumstances impractical. The current economic crisis were also blamed as an inappropriate time to launch currency.
(2 April 2009)
Analysis and forecast (↑ increasing risk)
Gulf states were looking at the common currency as an important step for giving the member states greater economic influence in global economics and politics. They were also looking at it as an opportunity to de-peg their currencies from the US dollar, which they have not done independently due to political and economic reason. The new currency would probably be linked to a basket of currencies and gold.
Despite this, the common currency project has had many set-backs mainly due to disagreements between the GCC member states on various issues. Oman has indicated last year that it does not wish to be part of the single currency. There are also reported disagreements on the local of the central bank, with Abu Dhabi hoping that it would be the host.
While the monetary and economic criteria have been largely met last year, including criteria on inflation, interest rates, budget deficit, government debt and foreign currency reserves, the current economic crisis are likely to create greater divergence in those criteria as oil revenue falls. So if it was difficult to reach consensus on the single currency now, it may take significant time for some GCC member states to satisfy the joining criteria after 2009.
The postponement of the launch of the common currency may be a first step in scrapping it altogether. This will make it increasingly difficult for individual member states to take major, long-needed monetary decisions (such as the de-pegging from the US dollar) and also not realize the benefits of a unified Gulf economic union both for intra-GCC trade as well as on the international arena.
The figure below shows the approximate contribution of GCC member states to the overall GDP of the GCC in 2008, estimated at just over US $ 1.1 trillion.