Gulf May Have `Third Global Currency' by 2020, Economist Says

By Will McSheehy

Feb. 7 (Bloomberg) -- Gulf states including Saudi Arabia and the United Arab Emirates, which control $1.8 trillion of wealth, may control ``the third global currency'' by 2020, according to Dubai economist and former Lebanese minister Nasser Saidi.

``The common Gulf Cooperation Council currency can emerge as a global currency that other countries of the region, other Arab and central Asian economies, could peg their currencies to,'' Saidi, chief economist for the Dubai International Financial Centre, said in a Bloomberg Television interview yesterday.

The single currency will take ``about 10 to 15 years'' to gain influence after GCC states form a monetary union in 2010, Saidi said. Backed by Arab oil wealth, it would vie with the dollar, euro, and yen as a hard currency of choice, he said.

The six GCC states, which together pump a fifth of the world's oil, pegged their currencies to the dollar in readiness for monetary union. The success of the union was thrown into doubt in 2006 when Oman said it couldn't meet convergence criteria by the 2010 target. Then in May Kuwait switched its dollar peg for a basket of currencies to curb soaring inflation.

Oman's concerns stem from its trade balance, as 40 percent of exports go to Japan, and so ``the yen is what they really care about,'' Saidi said. The ideal solution for the single currency would be to peg to a basket weighted to about 50 percent dollars, 30 percent euros, 10 or 15 percent yen and eventually Chinese yuan, he said.
A trading band allowing fluctuations against each component currency would ``allow flexibility for each member of the GCC,'' he said.

Currency Project

The single currency was conceived at a meeting of GCC heads of state in Muscat in 2001 to strengthen economic ties among members Saudi Arabia, Kuwait, Qatar, Bahrain, Oman and the U.A.E.

The plan for monetary union still has ``momentum,'' said Saidi, Lebanon's former minister of economy, industry and central bank vice-governor. Over the next two years Gulf leaders will discuss whether to form a single central bank or adopt some kind of federal structure, he said.
The Dubai International Financial Centre, or DIFC, is a self-regulated business park in downtown Dubai where banks including Citigroup Inc., HSBC Holdings Plc and Goldman Sachs Group Inc. have regional Middle East offices.

To contact the reporter on this story: Will McSheehy in Dubai at wmcsheehy@bloomberg.net