Kuwait Foreign Minister Sheikh Mohammed Al-Sabah announced Tuesday (May 25th) that the central banks in Gulf Cooperation Council (GCC) countries that are signatories to the Convention on Gulf Monetary Union would "pause" to consider the repercussions of euro crisis before going ahead with the Gulf monetary union project.
Al-Sabah, whose country heads the current session of the Gulf Cooperation Council (GCC), added that this does not mean the GCC is "stopping the implementation of the project."
"We will go ahead with the monetary union project, but we want to be certain to learn from the Greek drama," said Al-Sabah.
No new launch date for the new unified currency, originally scheduled for the beginning of this year, has been announced. Abdulrahman al-Attiyah, Secretary-General of the GCC, said Tuesday that it was unlikely that the GCC would launch a single currency in the next five years given all the preparation required.
The euro crisis is not the only issue impeding the creation of the as-yet-unnamed GCC unified currency.
Political incentives and economic goals outlined as part of the monetary union project have not yet provided the right atmosphere for a unified currency among the six GCC countries according to economic experts.
Financial analyst Hajjaj Bou Kaddour said discussion about a unified Gulf currency began with the establishment of the GCC in 1981, as the member countries realized the necessity of moving the region toward this goal in order to to keep pace with what was happening in areas like Europe.
The Sultanate of Oman announced in 2007 its withdrawal from the project because it wanted more time to adjust its economy to function with the unified currency. It worried about the provision that public debt could not exceed 60% of the gross domestic product (GDP).
As for the United Arab Emirates, which also withdrew, the main reason was political, according to Bou Khaddour.
The decision to put the Central Bank in Riyadh helped push the UAE, whose economy is the second largest in the region after Saudi Arabia, to withdraw in 2009. This raised fears that the absence of key member states could lead to the collapse of the project.
Kuwait, Saudi Arabia, Qatar and Bahrain eventually signed the Convention on the Gulf Monetary Union in June of 2009.
Economist Ahmed Al-Mousa told Al-Shorfa that it makes no sense to establish a monetary union among GCC countries without similarly promoting political unity.
'The GCC should not move toward monetary union unless all of its members have the desire to relinquish some sovereign powers," he said.
Bou Khaddour, however, said he believes that the UAE and Oman would ultimately reverse their decision. He expects the UAE to announce its return at the next GCC summit to be held in Abu Dhabi later this year.
"The UAE's strong economy is helping it to balance its economic affairs, and it is working on using the currency basket system," Bou Khaddour said. A currency basket is a selected group of currencies in which the average is used as a measure of the value or the amount of a debt.
Kuwait is the only country among GCC states that currently depends on the currency basket system.
"This imbalance in the economic budget can only be combated through a unified Gulf currency," Bou Khaddour said. "Despite the delay in implementing a unified Gulf currency, its completion is expected during the next two years."
Al-Mousa said Gulf countries, whose domestic production approaches $1.2 trillion, "are capable of assessing and defending their interests in a better way as a group, compared to what can be done as six independent states."
The unified currency could provide Gulf and Arab countries a greater degree of prestige and respect in international forums, he added.