GCC to decide on regional central bank location soon

Central bank heads to meet on Sept 15 to fine tune a deal that will bring the region closer to monetary union.

Members of the GCC may decide on a location for a planned regional central bank as soon as next week, when they gather to discuss the future of a proposed monetary union. Naser al Kaud, a deputy assistant secretary general at the GCC Secretariat General, told Reuters that central bank governors will meet on Sept 15 in order to put the "final touches" on the monetary union deal. Two days later, the governors will present their deal at a meeting with their finance ministers.

Once the deal is ratified, they will then be able to form a monetary council. Finally, Gulf leaders will have to approve any decisions made at next week's meetings, including any proposed location for a central bank, during their annual summit in Muscat in November. Mr Kaud told Reuters that an agreement reached at the meeting would add credibility to the plan. The original goal to have all six member countries move forward at the same time may be abandoned, he said, in the interest of preserving momentum.

"What we are trying now is to make it less than five, maybe three, so as to establish the monetary council as soon as possible," Mr Kaud said. "Whether that will happen or not happen we aren't sure, because our countries usually try to be unanimous." "It's recognised within the GCC that to build credibility around the common currency project they need to show concrete progress," said Simon Williams, an economist at HSBC. "Even if forming a monetary union by 2010 is beyond their reach, if they can establish joint institutions to show that they have reached agreement on some of the key policy issues, then the move towards a common currency will gain credibility."

The plan, which originally aimed to establish a single currency throughout the Gulf by Jan 1, 2010, has suffered multiple setbacks in recent years. Last year, Kuwait surprised other member nations when it unilaterally de-pegged its dinar from the dollar, breaking from an essential part of the monetary union plan. Every other GCC currency is pegged to the dollar, although worries about its weakness have led analysts to advise the rest to follow Kuwait's lead.

Oman broke step in 2006, when it decided it would not join the common currency union on the planned date, in 2010. In June, the GCC states with the exception of Oman agreed to move forward with their plans for a common currency. They agreed to create a monetary union, followed by a monetary council next year. The monetary council will eventually serve as the core of a single joint central bank. Among the council's responsibilities will be to determine the conversion rate for each national currency against the common currency, which could happen by the 2010 deadline, Mr Kaud said. The council will also be responsible for determining the schedule for rolling out new notes and coins.

"If they have decided on the name and the design, and get a functioning central bank in place by 2010, then it's just going to be a case of logistics to get the currency circulating," said Marios Maratheftis, a researcher at Standard Chartered Bank. "The important thing is to get the institutions. Making the deadline isn't the most important issue." [e-mail]