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
Saturday, February 9, 2008
Inflation biggest danger to UAE
By Peter Cooper on Wednesday, February 6 , 2008
The UAE is arguably the world’s best protected economy in a global economic recession with a strong commitment to domestic infrastructure underpinned by high oil revenues and huge income generating financial assets at home and abroad.
Even if the United States economy is joined by Japan, Mediterranean Europe and the United Kingdom in recession, the UAE will still thrive. Indeed, the cost of imports during a recession from these countries is likely to fall and the nation has huge savings accumulated to carry on paying its bills.
The biggest threat to the UAE economy is high inflation. In the latest MasterCard Worldwide Index of Consumer Confidence Survey, the UAE score fell back from 88.8 six months ago to 78.5. This is still high but officials said the fall reflected people’s fear of the declining spending power of their salaries and the value of remittances to their home countries. But salary levels remain high, so the UAE is not like Egypt, where soaring food prices have sent the MasterCard survey score tumbling from 95 to 65.9 in six months.
Dr Nasser Saidi, Chief Economist at the Dubai International Financial Centre, told journalists after the launch of the MasterCard survey that inflation in the UAE was down to two factors: domestic inflation of non-traded goods and services, such as housing rents; and one-third due to the dollar-peg and the decline in the purchasing power of the dollar. The authorities have taken steps to tackle the first cause of inflation through tighter rent cap, and are overseeing a massive increase in the supply of property over the next few years.
That leaves dollar-peg inflation, where a failure to make a decision to either upwardly revalue the dirham and keep the peg, or to abandon it in favour of a basket of currencies has resulted in local inflation being about one-third higher than it otherwise would be, according to Dr Saidi.
He said currency reform should be part of an evolution towards a common GCC currency, which would then be managed within the region and produce benefits in terms of wealth creation.
All eyes are now on Saudi Arabia, where the Custodian of the two Holy Shrines King Abdullah bin Abdulaziz will convene a meeting of the Shura council on February 10 to hear presentations about the revaluation of the riyal. It is highly likely that the UAE and at least two other dollar-linked GCC states will follow any Saudi move.
The odds point towards revaluation, although local currency markets seem to have given up trying to predict the move since their disappointment in December. And the main case against revaluation now is that one revaluation would just be followed by speculation about the next. That means for it to have an impact, it needs to be seen to be large enough to do the job.
The UAE is arguably the world’s best protected economy in a global economic recession with a strong commitment to domestic infrastructure underpinned by high oil revenues and huge income generating financial assets at home and abroad.
Even if the United States economy is joined by Japan, Mediterranean Europe and the United Kingdom in recession, the UAE will still thrive. Indeed, the cost of imports during a recession from these countries is likely to fall and the nation has huge savings accumulated to carry on paying its bills.
The biggest threat to the UAE economy is high inflation. In the latest MasterCard Worldwide Index of Consumer Confidence Survey, the UAE score fell back from 88.8 six months ago to 78.5. This is still high but officials said the fall reflected people’s fear of the declining spending power of their salaries and the value of remittances to their home countries. But salary levels remain high, so the UAE is not like Egypt, where soaring food prices have sent the MasterCard survey score tumbling from 95 to 65.9 in six months.
Dr Nasser Saidi, Chief Economist at the Dubai International Financial Centre, told journalists after the launch of the MasterCard survey that inflation in the UAE was down to two factors: domestic inflation of non-traded goods and services, such as housing rents; and one-third due to the dollar-peg and the decline in the purchasing power of the dollar. The authorities have taken steps to tackle the first cause of inflation through tighter rent cap, and are overseeing a massive increase in the supply of property over the next few years.
That leaves dollar-peg inflation, where a failure to make a decision to either upwardly revalue the dirham and keep the peg, or to abandon it in favour of a basket of currencies has resulted in local inflation being about one-third higher than it otherwise would be, according to Dr Saidi.
He said currency reform should be part of an evolution towards a common GCC currency, which would then be managed within the region and produce benefits in terms of wealth creation.
All eyes are now on Saudi Arabia, where the Custodian of the two Holy Shrines King Abdullah bin Abdulaziz will convene a meeting of the Shura council on February 10 to hear presentations about the revaluation of the riyal. It is highly likely that the UAE and at least two other dollar-linked GCC states will follow any Saudi move.
The odds point towards revaluation, although local currency markets seem to have given up trying to predict the move since their disappointment in December. And the main case against revaluation now is that one revaluation would just be followed by speculation about the next. That means for it to have an impact, it needs to be seen to be large enough to do the job.
Friday, February 8, 2008
Call to hasten move for GCC monetary union
BY JOSE FRANCO
7 February 2008
DUBAI -An official of a global development network has urged member-states of the Gulf Co-operation Council to hasten moves for a monetary union, stressing that no GCC state would be able to compete with global economies alone.
"The GCC should get together and move quickly to a monetary union," said Dr Khaled Alloush, UAE resident representative of the United Nations Development Programme (UNDP), in a conference yesterday.
He also said that Gulf economies are "losing any policy option" by pegging their currencies to the weakening US dollar, stressing that stronger GCC currencies would not adversely affect the export industry because of high oil prices in the international market. Kuwait has abandoned the dollar-peg since last May.
He cited impressive growth rates in the GCC countries of Saudi Arabia, Bahrain, Kuwait, the UAE, Oman and Qatar as the best reason to quicken their monetary union, which is set for 2010. He also noted low debts and high international reserves.
He stressed that never will a GCC country establish a major economy alone. "But collectively, yes," he said in a presentation before the GCC Inflation Challenges Conference. "You have good reason to move together."
He said that growth rates in the GCC will continue, citing the high prices of oil and gas in the international market, sound economic management and sustained political stability, despite the fact the Gulf countries are within the bigger Middle East region, whose other parts are riddled with serious problems on peace and security.
GCC exports rose to over Dh2 trillion ($546 billion) last year from Dh1.84 trillion ($502 billion) in 2006 while imports grew to Dh1.3 trillion ($344.8 billion) from Dh1.1 trillion ($299.2 billion) for the same period.
Alloush dismissed concerns on high inflation rates in the Gulf countries, saying these are "not alarming" if compared to most other Western countries. "External investment will continue to come in and inward inflows will continue," he said.
The increasing gap between the inflation rates in the GCC members have made the scheduled monetary union, which is the final step in the integration of Gulf economies that began in 1983, difficult to achieve, the Dubai Chamber of Commerce and Industry said on Monday.
7 February 2008
DUBAI -An official of a global development network has urged member-states of the Gulf Co-operation Council to hasten moves for a monetary union, stressing that no GCC state would be able to compete with global economies alone.
"The GCC should get together and move quickly to a monetary union," said Dr Khaled Alloush, UAE resident representative of the United Nations Development Programme (UNDP), in a conference yesterday.
He also said that Gulf economies are "losing any policy option" by pegging their currencies to the weakening US dollar, stressing that stronger GCC currencies would not adversely affect the export industry because of high oil prices in the international market. Kuwait has abandoned the dollar-peg since last May.
He cited impressive growth rates in the GCC countries of Saudi Arabia, Bahrain, Kuwait, the UAE, Oman and Qatar as the best reason to quicken their monetary union, which is set for 2010. He also noted low debts and high international reserves.
He stressed that never will a GCC country establish a major economy alone. "But collectively, yes," he said in a presentation before the GCC Inflation Challenges Conference. "You have good reason to move together."
He said that growth rates in the GCC will continue, citing the high prices of oil and gas in the international market, sound economic management and sustained political stability, despite the fact the Gulf countries are within the bigger Middle East region, whose other parts are riddled with serious problems on peace and security.
GCC exports rose to over Dh2 trillion ($546 billion) last year from Dh1.84 trillion ($502 billion) in 2006 while imports grew to Dh1.3 trillion ($344.8 billion) from Dh1.1 trillion ($299.2 billion) for the same period.
Alloush dismissed concerns on high inflation rates in the Gulf countries, saying these are "not alarming" if compared to most other Western countries. "External investment will continue to come in and inward inflows will continue," he said.
The increasing gap between the inflation rates in the GCC members have made the scheduled monetary union, which is the final step in the integration of Gulf economies that began in 1983, difficult to achieve, the Dubai Chamber of Commerce and Industry said on Monday.
Wednesday, February 6, 2008
GCC currency union won’t be affected by Oman backing out
By Safura Rahimi on Wednesday, February 6 , 2008
Oman’s decision to withdraw from the Gulf monetary union will not disrupt the proposed currency plan, said Chief Economist at the DIFC on Tuesday.
“I don’t think [Oman pulling out from the proposed union] will derail the process – Oman has already indicated previously that it wasn’t considering the move,” Dr Nasser Saidi told Emirates Business.
The GCC plan for a common currency faced a setback on Sunday when Oman’s Central Bank governor finally announced its decision to pull out altogether from the proposed common currency after experiencing the highest inflation rate in the GCC since 1991.
However, even without Oman, Saudi Arabia, the UAE, Bahrain, Qatar, and Kuwait could still form the union, just as the EU was established without the United Kingdom. “What I think is important in the case of monetary union for GCC countries is the decisions to be taken by Saudi Arabia and the UAE, given the size of their economies,” Dr Saidi said.
“They have to be the core drivers, with maybe other countries coming in at different times.”
With them both pushing for a union – similar to France and Germany paving the road towards the euro – they could create enough momentum to move towards a common currency, he said.
Kuwait’s US dollar de-peg in 2007 and Oman’s opt out of joining the monetary union in 2010 have led to mounting pressure on monetary authorities to change their currency policy after the US dollar’s depreciation. Dr Saidi said the best solution for GCC countries is a basket of currencies consisting of the euro, US dollar and Japanese yen.
“If you look at the volatility and the relationships [of the GCC], and which countries they should link to, it turns out the best answer is to have a basket,” he said.
A report from the Dubai Chamber of Commerce and Industry on Monday said it is most likely that the UAE Central Bank will revalue the dirham against the US dollar in line with other GCC currencies. Inflation rates are not to exceed two per cent of the lowest three’s average but so far this has not been achieved.
“The disparities in inflation rates undermine the convergence of economies in real terms,” it said.
Oman’s decision to withdraw from the Gulf monetary union will not disrupt the proposed currency plan, said Chief Economist at the DIFC on Tuesday.
“I don’t think [Oman pulling out from the proposed union] will derail the process – Oman has already indicated previously that it wasn’t considering the move,” Dr Nasser Saidi told Emirates Business.
The GCC plan for a common currency faced a setback on Sunday when Oman’s Central Bank governor finally announced its decision to pull out altogether from the proposed common currency after experiencing the highest inflation rate in the GCC since 1991.
However, even without Oman, Saudi Arabia, the UAE, Bahrain, Qatar, and Kuwait could still form the union, just as the EU was established without the United Kingdom. “What I think is important in the case of monetary union for GCC countries is the decisions to be taken by Saudi Arabia and the UAE, given the size of their economies,” Dr Saidi said.
“They have to be the core drivers, with maybe other countries coming in at different times.”
With them both pushing for a union – similar to France and Germany paving the road towards the euro – they could create enough momentum to move towards a common currency, he said.
Kuwait’s US dollar de-peg in 2007 and Oman’s opt out of joining the monetary union in 2010 have led to mounting pressure on monetary authorities to change their currency policy after the US dollar’s depreciation. Dr Saidi said the best solution for GCC countries is a basket of currencies consisting of the euro, US dollar and Japanese yen.
“If you look at the volatility and the relationships [of the GCC], and which countries they should link to, it turns out the best answer is to have a basket,” he said.
A report from the Dubai Chamber of Commerce and Industry on Monday said it is most likely that the UAE Central Bank will revalue the dirham against the US dollar in line with other GCC currencies. Inflation rates are not to exceed two per cent of the lowest three’s average but so far this has not been achieved.
“The disparities in inflation rates undermine the convergence of economies in real terms,” it said.
Tuesday, February 5, 2008
Oman opts out of GCC single currency
Oman's central bank governor has says the country has no plans to join the proposed GCC single currency and will not revalue its currency.
Oman's decision to opt out of monetary union is significant, not so much in the act itself, but in the comments it drew from GCC finance ministers, particularly the Saudi minister, Ibrahim al-Assaf. Monetary union can still theoretically proceed without Oman, and the other five states have restated their commitment to meeting the timetable. However, Saudi Arabia, the single most important actor, in economic terms at least, has voiced concerns about the likelihood of the 2010 deadline being met, saying that the project 'is very ambitious'. This suggests to us that the timetable is probably going to be extended, as
Oman's decision to opt out of monetary union is significant, not so much in the act itself, but in the comments it drew from GCC finance ministers, particularly the Saudi minister, Ibrahim al-Assaf. Monetary union can still theoretically proceed without Oman, and the other five states have restated their commitment to meeting the timetable. However, Saudi Arabia, the single most important actor, in economic terms at least, has voiced concerns about the likelihood of the 2010 deadline being met, saying that the project 'is very ambitious'. This suggests to us that the timetable is probably going to be extended, as
Inflation threatens to derail monetary union
by Amy Glass on Monday, 04 February 2008
INFLATION THREAT: GCC states will have to revalue to meet monetary union criteria on inflation, DCCI warmed. (Getty Images)Soaring inflation across the GCC is threatening to derail the block's plans to establish a monetary union and single currency by 2010, Dubai Chamber of Commerce and Industry (DCCI) warned on Monday.
The DCCI said GCC member states have so far been unable to meet inflation criteria required for the monetary union, and the situation is becoming more difficult as housing supply shortages and the rising cost of imports linked to their currencies' peg to the tumbling US dollar fuels inflationary pressure.
The criteria states that inflation rates are not allowed to exceed 2% of the lowest three's average.
Of the six member states, Bahrain has the lowest inflation rate, at around 3% last year, while Qatar has the highest level of inflation at an average of 14% last year.
However, all six are struggling to rein in inflation, with investment back Merrill Lynch predicting last week inflation will continue to rise across the Gulf this year, hitting a 20-year high of 12% in the UAE.
RELATED: UAE inflation in danger of hitting 12% this year
The DCCI said that given Gulf leaders' determination to establish a monetary union by 2010, something most analysts now think is impossible, central banks will be forced to revalue their dollar-pegged currencies in order to harmonise inflation rates.
"It is therefore most likely that the UAE Central Bank will revalue the dirham against the US dollar inline with other GCC currencies," the DCCI said an economic bulletin.
"This will help to some extent in alleviating inflationary pressure whilst retaining adherence to the dollar peg stipulated as an integral part of the convergence criteria necessary for a MU (monetary union) in 2010."
Record inflation has seen increasing pressure heaped on central banks to revalue their currencies or follow Kuwait's lead and ditch the dollar peg altogether.
Kuwait broke ranks with its neighbours in May last year and dropped the dinar's peg to the dollar in favour of a basket of currencies, citing the US currencies' falling value as driving up inflation.
Egyptian investment bank EFG-Hermes has forecast a 60% likelihood that central banks will introduce currency reform this year.
However, central banks have repeatedly ruled out any monetary policy shift.
In the latest defence of monetary policy, Oman Central Bank Governor Hamood Sangour Al-Zadjali on Saturday ruled out revaluing its currency or dropping its peg to the dollar, saying a weaker rial helps attract foreign investment and make exports more competitive, offsetting inflation.
RELATED: Oman rules out depegging, single currency
Al-Zadjali also ruled out altogether joining the monetary union by 2010, reiterating a decision Oman took in 2006 over concerns that spending targets could constrain economic growth.
INFLATION THREAT: GCC states will have to revalue to meet monetary union criteria on inflation, DCCI warmed. (Getty Images)Soaring inflation across the GCC is threatening to derail the block's plans to establish a monetary union and single currency by 2010, Dubai Chamber of Commerce and Industry (DCCI) warned on Monday.
The DCCI said GCC member states have so far been unable to meet inflation criteria required for the monetary union, and the situation is becoming more difficult as housing supply shortages and the rising cost of imports linked to their currencies' peg to the tumbling US dollar fuels inflationary pressure.
The criteria states that inflation rates are not allowed to exceed 2% of the lowest three's average.
Of the six member states, Bahrain has the lowest inflation rate, at around 3% last year, while Qatar has the highest level of inflation at an average of 14% last year.
However, all six are struggling to rein in inflation, with investment back Merrill Lynch predicting last week inflation will continue to rise across the Gulf this year, hitting a 20-year high of 12% in the UAE.
RELATED: UAE inflation in danger of hitting 12% this year
The DCCI said that given Gulf leaders' determination to establish a monetary union by 2010, something most analysts now think is impossible, central banks will be forced to revalue their dollar-pegged currencies in order to harmonise inflation rates.
"It is therefore most likely that the UAE Central Bank will revalue the dirham against the US dollar inline with other GCC currencies," the DCCI said an economic bulletin.
"This will help to some extent in alleviating inflationary pressure whilst retaining adherence to the dollar peg stipulated as an integral part of the convergence criteria necessary for a MU (monetary union) in 2010."
Record inflation has seen increasing pressure heaped on central banks to revalue their currencies or follow Kuwait's lead and ditch the dollar peg altogether.
Kuwait broke ranks with its neighbours in May last year and dropped the dinar's peg to the dollar in favour of a basket of currencies, citing the US currencies' falling value as driving up inflation.
Egyptian investment bank EFG-Hermes has forecast a 60% likelihood that central banks will introduce currency reform this year.
However, central banks have repeatedly ruled out any monetary policy shift.
In the latest defence of monetary policy, Oman Central Bank Governor Hamood Sangour Al-Zadjali on Saturday ruled out revaluing its currency or dropping its peg to the dollar, saying a weaker rial helps attract foreign investment and make exports more competitive, offsetting inflation.
RELATED: Oman rules out depegging, single currency
Al-Zadjali also ruled out altogether joining the monetary union by 2010, reiterating a decision Oman took in 2006 over concerns that spending targets could constrain economic growth.
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