IMF against Gulf currency bid

The costs of having a single currency in the Gulf may outweigh the benefits, the IMF said in a report yesterday.

The statement is another blow to the prospects for monetary union in the GCC, which has been on the drawing board for more than a decade but has looked increasingly uncertain after the UAE and Oman pulled out.

"Without a higher degree of synchronisation in business cycles the cost of monetary union may outweigh its benefits," wrote Serhan Cevik, an IMF economist, in the report.

To make a union work, GCC states would need to trade more with each other and invest in each others' economies, Mr Cevik said.

At the moment, Gulf nations tend to trade and invest more with Europe, the United States and Asia than with each other.

After the withdrawal of Oman in 2006 and the UAE in 2009, there are only four countries left in the proposed Gulf single currency project: Saudi Arabia, Qatar, Kuwait and Bahrain. But even they have given up trying to give a starting date for the union.

The UAE pulled out after a decision to locate the headquarters of the proposed Gulf central bank in Riyadh.

Muhammad Al Jasser, the governor of the Saudi Central Bank, said in September that there was "no postponement" to the union plans.

But Farouk Soussa, the Middle East economist at Citigroup, said: "The GCC monetary union does not seem to be a project anywhere near fruition and if it were to be pushed through now, without the groundwork in place, it would lack economic meaning."

The IMF's concerns about the Gulf common currency coincide with a crisis among the 17 nations that share the euro.

The GCC plans had been inspired by the framework used to establish the euro.

A lack of integration in the euro zone was one cause of the crisis that now threatens its survival.

"The European experience shows if you are going to form a monetary union, it has to be done properly," said Douglas McWilliams, an economic adviser for the Institute of Chartered Accountants in England and Wales.

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