GCC currency may be linked to euro-led basket,

22/Jan/2008

The Gulf states are discussing pegging a planned common currency to a euro-dominated basket rather than to the US dollar, the head of the Federation of GCC Chambers has said.

“There is discussion between GCC countries about moving from a dollar peg to a more flexible currency basket made up predominantly of euros,” Abdulrahim Hasan Naqi, secretary-general of the FGCCC, said in an interview in Abu Dhabi.

“The euro is attractive for the future GCC currency because the European Union is close in structure to the GCC,” Naqi said, adding that no official studies into the subject had been conducted so far. Presently, five GCC countries - Saudi Arabia, the United Arab Emirates, Qatar, Oman and Bahrain - peg their currencies to the dollar. Kuwait was the first to break ranks this year when it de-pegged from the weakening greenback.

Pressure has increased on GCC central banks to de-peg their currencies from the dollar as they battle accelerating inflation. “GCC countries should work together to fight inflation. Our suggestion is to buy together from outside as it will be cheaper in higher volumes, to invest in factories for food outside and to import from cheaper countries and to control our currencies,” Naqi said.

Oil-rich GCC countries have officially played down talks of de-pegging from the weakening dollar and publicly said any revaluation against the greenback will be done in unison.

“If GCC currencies do move to a currency basket the euro is likely to be an important currency but oil is priced in dollars so should make up a large part of the basket,” said Monica Malik, an economist at EFG-Hermes. On Friday, the euro traded at $1.4622 compared to its record high of $1.4967 in November.

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