BY ISSAC JOHN (Deputy Business Editor)
11 February 2008
DUBAI — A longer delay in GCC monetary union (MU) will prompt some member countries to contemplate one-off revaluations, while still maintaining the dollar pegs, leading currency analysts warned.
Since the planned monetary union of the GCC in 2010 looks to be an increasingly ambitious goal, there is a rising risk that it will either be delayed or that a few, but not all, of the six GCC member countries will start this union on time, and others will join when they are ready, said Stephen Jen, an analyst at Morgan Stanley, a global financial services firm.
"Modest step revaluations, while retaining dollar pegs, are indeed a possibility, particularly if the Fed continues to ease while oil prices don’t correct significantly. The probability rises the longer the monetary union is postponed," he said.
"A postponement of the launch of the monetary union could complicate the exchange rate policies of the GCC countries. Specifically, the longer the delay, the more tempting/likely it will be for some small open economies in the GCC to contemplate one-off revaluations," Jen said in a report co-authored with Luca Bindelli and Charles St-Arnaud.
Stressing the need for an independent monetary policy with a managed float exchange rate regime for the GCC members, they argued that it would, in theory, be better for the GCC to introduce major changes to their exchange rate and monetary regime after they have introduced a monetary union.
"At the GCC Heads of State Summit in December 2007, the issue of whether to postpone the establishment of the monetary union was tabled for discussion, but no verdict was rendered. Our best guess at this point is that the project will either have to be postponed to 2015 or that only a small subset of the six GCC members will form the initial common currency area, with the others joining in the future, when they are ready. What this means is that the individual countries may have more leeway in devising their own policy paths in the meantime, i.e., it will no longer be essential that the GCC members move in sync and in a coordinated manner," they pointed out.
According to the analysts, the total GDP of the six GCC countries is rather modest. At $790 billion in 2007, the GCC is a little more than half the size of Canada. The total population of the GCC is 36 million, with Saudi Arabia accounting for 24 million of this total.
"While the GCC members have more natural (economic, social, language, historical and cultural) commonalities than the countries in the Euroland, there is relatively less convergence on economic measures." The main concern, they pointed out, is different endowments of natural resources. Second, fiscal convergence will be difficult. With exports of energy being so dominant, swings in oil prices have had, and will continue to have, a major impact on the fiscal positions of these countries.
There is also no more monetary convergence. "The GCC members now need to think hard about their price competitiveness as they enter the monetary union. The longer it takes to form a monetary union, the wider the window for policy interventions to adjust these glide paths."
Another concern is low quality of macro data and a lack of transparency. For example, CPI inflation is available with a six-month lag in Kuwait, while Bahrain and UAE only have annual numbers. In addition, the measures themselves are likely to be understatements of the reality.
Low degree of labour mobility within the region for the expatriate workers is another concern. Though there is effective free movement of the nationals within the GCC, mobility is much lower for the expatriate workers.
"One of the key requirements of an optimal currency area is free mobility of capital and labour, and the GCC has not satisfied this requirement yet," they pointed out.
Monday, February 11, 2008
Saturday, February 9, 2008
Wealth of opportunities
by Tamara Walid on Friday, 08 February 2008
Kevin Lecocq, CIO of Barclays Wealth, talks to Tamara Walid about where he thinks the weakening dollar is heading, the pros and cons of depegging, and the unique challenges of wealth management in the Middle East.
A lot has changed since 1971 when the strength of the US dollar allowed people like John Connally, Treasury Secretary in those days, to say: "It may be our currency, but it's your problem".
Connally's remark was uttered just as the US broke free from the gold standard, consequently laying down a fresh set of rules for international business.
Kevin Lecocq, chief investment officer and head of the Investment and Product Office at Barclays Wealth, recalls the secretary's comment, as we sit on the 15th floor at the DIFC's The Gate, where the bank's Middle East office is located.
And although times have changed, Lecocq believes, some things remain the same - and as the CIO of a wealth asset management company with over US$217bn in assets, he should know.
As from way back, the US runs its monetary policy exclusively on domestic concerns. One is the inflation rate and the other is the unemployment rate. And it doesn't really take other linked currencies much into account in making its monetary policies," he says.
This isn't very surprising. After all, the GDP of the US is around US$13 trillion, whereas Saudi Arabia's is less than US$570bn, even with oil being at US$100 a barrel.
This means that even a 20% plus or minus in the Saudi riyal has barely any effect on the US so when it comes to countries such as Oman and the UAE, the effect is even more negligible. This US attitude, Lecocq believes, is still present today, to some degree.
"Much of East Asia has defector pegs or, as in the case of Hong Kong and until recently Malaysia, hard pegs to the US dollar.
Of course Latin America has had one and that's depegged and of course the Gulf region with the exception of Kuwait is part-pegged," says Lecocq, continuing: "What has happened is that the US is responding to its own domestic problems and subprime crisis, by cutting rates pretty dramatically, and this is not necessarily optimal monetary policy for the GCC, which is experiencing inflation and extraordinary robust growth.
This calls for a balancing act by the monetary policy authorities in the region, stresses Lecocq. On one hand there's the option to remove the peg and run an independent and domestically-focused monetary policy, he says. On the other hand, there are benefits to the peg in that it eliminates the exchange rate risk.
The benefit of the peg on linked currencies is, among themselves, there's really no exchange rate risk.
Exchange rate risk with the US is zero and so there are benefits with cost and so, in doing that, in our own belief, the benefits partly outweigh the costs in terms of trade and capital, in terms of how the monetary policies are engineered," says Lecocq.
A minute later, however, Lecocq is back in reality, recalling that whatever market-watchers thought, what really mattered was the opinion of decision-makers.
"It doesn't actually matter what we think, but what we think policy people think," says Lecocq, who doesn't see any signs of a move from Gulf countries to depeg from the dollar, even after talks in Qatar last November.
Despite being a very difficult shift to predict, Lecocq's experience tells him that the dollar will start to rally this year.
"In fact the euro has run out of steam and the pound is starting to sink a bit.
The current account in the United States is starting to shrink and the bad news is that the US and its cycle is the first one to slow down. Europe will start to slow down a bit later, and perhaps other parts of the world later on, but there's a cyclical element to it.
The dollar's probably pretty close to bottoming out and if the euro sells off into the 1.30s or 1.20s then there'll be even less pressure on countries in the GCC," predicts Lecocq.
The issue of inflation remains, and Lecocq believes that, if nothing else changes policy-makers' minds, inflation will. His gut feeling, tells him, however, "they're not ready to make the move yet". Hypothetically, if Gulf nations were to depeg tomorrow, Lecocq cites a number of advantages, but believes it is not entirely clear whether the man on the street would be better off.
There'd be a real appreciation in currency and so the ability to purchase foreign manufactured goods would go up, so the price of a flat screen TV will go down or stop rising. What may also happen is that interest rates may rise, so mortgages on houses might go up," he says.
As is the case with most economic shifts, lower classes would be affected the most. For example, if a depeg occurs, for a temporary Indian or South Asian worker in the region, the cost of living is bound to go up in rupee terms.
People with US$500m are obviously going to have a very different demand-set than people with US$5bn.A reasonable step would be a common currency, stresses Lecocq, which he thinks will bring numerous benefits to the region as with Europe's example. That "experiment" has turned out pretty well, he says. Booming inter-regional trade and the region's dynamics at the moment are all factors that make the move possible.
Story continues below ↓
advertisement
"The fact that GCC countries are currently, with the exception of Kuwait, pegged to the dollar, makes the exchange rate risk minimal but it's more of a transaction cost and that transaction cost would be eliminated by having a common currency. The common currency then could float against the dollar," says Lecocq.
He adds that, in a sense, there is no need for small countries to have their own currency. Countries with less than several million people are most likely better off having a linked currency.
While the future of the dollar peg remains unknown, the present state of the region's stock markets seems to be rather bright, or so thinks Khurram Jafree, director of the Investment and Product Office at Barclays Wealth.
"Overall they're in pretty good shape. What is beginning to happen is that you have an accommodative stance on monetary policy; you have a very powerful backdrop in the region, high oil and gas prices filtering through the entire MENA region, and you have booming trade," he says.
Jafree believes that the combination of all those factors creates "very powerful runners" that are "up there". Valuation remaining "very reasonable" has also been a plus, he says.
When it comes to giving advice in the right direction for wealthy people looking to invest their money, the experts at Barclays Wealth have a process in place. Jafree explains what goes into that system.
"The first principle we work on is that we run multi-asset class portfolios," he says.
This starts with understanding the client's goal, as the nature of a portfolio differs for a client who requires income to that of capital growth. Then comes measuring the extent of risk clients are prepared to take, followed by diversification.
"What we have seen in the last three to four months is that diversification has really played out. For example, if you had your assets in fixed income, certainly the high quality fixed income and equities, portions of equity markets will whack the fixed income.
If you had commodities, commodity markets have done very well," says Jafree, adding that there are several different places to make money at the moment in a risk adjusted manner, with diversification playing an extremely important role.
Does this mean it is "safe" to invest in the region? Not exactly. As Jafree says, the term is relative. Both Jafree and Lecocq, however, admit to loving the economic success stories.
"I might think of it this way," says Lecocq. "We are recommending people outside of the Gulf to invest here very strongly. Then again, whether people here should put all their eggs in one basket is a different story.
While the two financial experts can't help but find the region highly appealing from a macro and business perspective and a very attractive place to invest, where diversification is concerned, it all boils down to the status of the client.
"Some of the clients already have large real estate holdings; commercial, residential or industrial, and to add more geographic risk onto that may not make much sense from a diversification point of view," explains Lecocq.
"In other cases," he continues, "clients have a clear benchmark for their wealth creation. Some benchmark themselves against their equally wealthy peers. If their friends are not expanding outside the region, and if Barclays decides to put them into a global and more diversified portfolio, while regional markets continue to do expectedly well, clients may not be satisfied," explains Lecocq.
"So what we do is we spend a lot of time with our clients trying to understand their benchmark and their mentality and attitude about diversification," he adds.
And after several decades in the region, the people at Barclays must have formed a pretty good idea, especially given the "phenomenal" growth the bank has experienced in the last year and half.
"What we do here is cater to high net worth individuals, which roughly means people with investments and assets of US$1m and more and we've got a variety of bankers. Some of them concentrate on people with US$1m to US$20m, while others concentrate on US$500m and billionaires," says Lecocq.
Among the bank's clients, women make up a high percentage, says Lecocq. In his mind, Barclays Wealth is a friendly open place for women in the region to stop by, talk finance and get advice. One of the main aspects that differentiate Barclays from any other bank, according to Lecocq, is its highly personalised service.
Story continues below ↓
advertisement
"We have a team of specialists who work with clients as opposed to banks where you get sold a product. What we do is tailor portfolios around individuals. People with US$500m are obviously going to have a very different demand-set than people with US$5bn," he says.
Whatever it is the Barclays team is doing in the region, it is working. In the past year, the bank has expanded its regional staff-base by over 150% and Lecocq expects growth north of 10-12% in the year 2008.
One of the biggest contributors to the company's regional development is what Lecocq calls the "breadth of wealth creation" the region is currently experiencing.
It's one thing when a very tiny fraction of society gets rich, often from extracted industries like oil and gas, and quite another when you have an incredibly powerful and growing upper middle class of entrepreneurs, property developers, big shop owners, manufacturing and software companies, human resource, and consulting," he explains.
Lecocq believes that the amount of "breadth of society" in the region is "incredibly powerful". People with millions of dollars, reaped from building a business over the last six years, and who have very specific demands from a bank for personal attentiveness and service, make up the core client base of Barclays Wealth in the Middle East and the GCC specifically.
"That's why we are growing here quite rapidly ourselves, as are other banks," he says. At present, Dubai is the most rapidly-growing market for Barclays Wealth in terms of staff. Where assets are concerned, Abu Dhabi is the hottest spot at the moment, according to Lecocq.
The way to success, however, wasn't obstacle-free. Lecocq recalls many challenges, and a number are still present.
"The first challenge, which is also an opportunity, is that it's not yet a mature market. You go to Switzerland and you know who the clients and the bankers are.
"It's not that dynamic but it's pretty easy to find your way around. Here, because people got so wealthy so quickly, you don't actually know who all the clients are," he says.
Moreover, it's difficult to land an expert banker in the region, Lecocq complains. This, he thinks, is due to the fact that it's a wealth creation environment, which makes it hard to find best practice overall.
Tremendous growth in the region resulted in demand from banks exceeding the supply of experienced bankers.
Barclays deals with it by finding the best bankers and bringing them into the business, explains Lecocq.
"Partly, it's by bringing people who have language or banking skills from places like Europe into the region, and we're populating our team. Right now, both the challenges and opportunities are almost the same.
"It's a quite far from being a mature market," he says. The markets still have a long way to go in order to mature, but the process is accelerating, believes Lecocq. He sees his client-base expanding and plenty of room to grow and attract more customers.
"What's happened, which is good, is that clients have a very strong and well-defined sense of what they want out of their bank, whereas a couple of years ago it was less defined," he says.
This all paves the way to further regional growth for Barclays Wealth. The trick is to maintain quality control, Lecocq points out. Getting the right bankers, investment specialists and technical people into the business is essential.
Additionally, with an office in Dubai, Abu Dhabi, and Qatar as well as bankers in London and Geneva covering the Middle East region, Lecocq seems to have found the formula for success.
Kevin Lecocq, CIO of Barclays Wealth, talks to Tamara Walid about where he thinks the weakening dollar is heading, the pros and cons of depegging, and the unique challenges of wealth management in the Middle East.
A lot has changed since 1971 when the strength of the US dollar allowed people like John Connally, Treasury Secretary in those days, to say: "It may be our currency, but it's your problem".
Connally's remark was uttered just as the US broke free from the gold standard, consequently laying down a fresh set of rules for international business.
Kevin Lecocq, chief investment officer and head of the Investment and Product Office at Barclays Wealth, recalls the secretary's comment, as we sit on the 15th floor at the DIFC's The Gate, where the bank's Middle East office is located.
And although times have changed, Lecocq believes, some things remain the same - and as the CIO of a wealth asset management company with over US$217bn in assets, he should know.
As from way back, the US runs its monetary policy exclusively on domestic concerns. One is the inflation rate and the other is the unemployment rate. And it doesn't really take other linked currencies much into account in making its monetary policies," he says.
This isn't very surprising. After all, the GDP of the US is around US$13 trillion, whereas Saudi Arabia's is less than US$570bn, even with oil being at US$100 a barrel.
This means that even a 20% plus or minus in the Saudi riyal has barely any effect on the US so when it comes to countries such as Oman and the UAE, the effect is even more negligible. This US attitude, Lecocq believes, is still present today, to some degree.
"Much of East Asia has defector pegs or, as in the case of Hong Kong and until recently Malaysia, hard pegs to the US dollar.
Of course Latin America has had one and that's depegged and of course the Gulf region with the exception of Kuwait is part-pegged," says Lecocq, continuing: "What has happened is that the US is responding to its own domestic problems and subprime crisis, by cutting rates pretty dramatically, and this is not necessarily optimal monetary policy for the GCC, which is experiencing inflation and extraordinary robust growth.
This calls for a balancing act by the monetary policy authorities in the region, stresses Lecocq. On one hand there's the option to remove the peg and run an independent and domestically-focused monetary policy, he says. On the other hand, there are benefits to the peg in that it eliminates the exchange rate risk.
The benefit of the peg on linked currencies is, among themselves, there's really no exchange rate risk.
Exchange rate risk with the US is zero and so there are benefits with cost and so, in doing that, in our own belief, the benefits partly outweigh the costs in terms of trade and capital, in terms of how the monetary policies are engineered," says Lecocq.
A minute later, however, Lecocq is back in reality, recalling that whatever market-watchers thought, what really mattered was the opinion of decision-makers.
"It doesn't actually matter what we think, but what we think policy people think," says Lecocq, who doesn't see any signs of a move from Gulf countries to depeg from the dollar, even after talks in Qatar last November.
Despite being a very difficult shift to predict, Lecocq's experience tells him that the dollar will start to rally this year.
"In fact the euro has run out of steam and the pound is starting to sink a bit.
The current account in the United States is starting to shrink and the bad news is that the US and its cycle is the first one to slow down. Europe will start to slow down a bit later, and perhaps other parts of the world later on, but there's a cyclical element to it.
The dollar's probably pretty close to bottoming out and if the euro sells off into the 1.30s or 1.20s then there'll be even less pressure on countries in the GCC," predicts Lecocq.
The issue of inflation remains, and Lecocq believes that, if nothing else changes policy-makers' minds, inflation will. His gut feeling, tells him, however, "they're not ready to make the move yet". Hypothetically, if Gulf nations were to depeg tomorrow, Lecocq cites a number of advantages, but believes it is not entirely clear whether the man on the street would be better off.
There'd be a real appreciation in currency and so the ability to purchase foreign manufactured goods would go up, so the price of a flat screen TV will go down or stop rising. What may also happen is that interest rates may rise, so mortgages on houses might go up," he says.
As is the case with most economic shifts, lower classes would be affected the most. For example, if a depeg occurs, for a temporary Indian or South Asian worker in the region, the cost of living is bound to go up in rupee terms.
People with US$500m are obviously going to have a very different demand-set than people with US$5bn.A reasonable step would be a common currency, stresses Lecocq, which he thinks will bring numerous benefits to the region as with Europe's example. That "experiment" has turned out pretty well, he says. Booming inter-regional trade and the region's dynamics at the moment are all factors that make the move possible.
Story continues below ↓
advertisement
"The fact that GCC countries are currently, with the exception of Kuwait, pegged to the dollar, makes the exchange rate risk minimal but it's more of a transaction cost and that transaction cost would be eliminated by having a common currency. The common currency then could float against the dollar," says Lecocq.
He adds that, in a sense, there is no need for small countries to have their own currency. Countries with less than several million people are most likely better off having a linked currency.
While the future of the dollar peg remains unknown, the present state of the region's stock markets seems to be rather bright, or so thinks Khurram Jafree, director of the Investment and Product Office at Barclays Wealth.
"Overall they're in pretty good shape. What is beginning to happen is that you have an accommodative stance on monetary policy; you have a very powerful backdrop in the region, high oil and gas prices filtering through the entire MENA region, and you have booming trade," he says.
Jafree believes that the combination of all those factors creates "very powerful runners" that are "up there". Valuation remaining "very reasonable" has also been a plus, he says.
When it comes to giving advice in the right direction for wealthy people looking to invest their money, the experts at Barclays Wealth have a process in place. Jafree explains what goes into that system.
"The first principle we work on is that we run multi-asset class portfolios," he says.
This starts with understanding the client's goal, as the nature of a portfolio differs for a client who requires income to that of capital growth. Then comes measuring the extent of risk clients are prepared to take, followed by diversification.
"What we have seen in the last three to four months is that diversification has really played out. For example, if you had your assets in fixed income, certainly the high quality fixed income and equities, portions of equity markets will whack the fixed income.
If you had commodities, commodity markets have done very well," says Jafree, adding that there are several different places to make money at the moment in a risk adjusted manner, with diversification playing an extremely important role.
Does this mean it is "safe" to invest in the region? Not exactly. As Jafree says, the term is relative. Both Jafree and Lecocq, however, admit to loving the economic success stories.
"I might think of it this way," says Lecocq. "We are recommending people outside of the Gulf to invest here very strongly. Then again, whether people here should put all their eggs in one basket is a different story.
While the two financial experts can't help but find the region highly appealing from a macro and business perspective and a very attractive place to invest, where diversification is concerned, it all boils down to the status of the client.
"Some of the clients already have large real estate holdings; commercial, residential or industrial, and to add more geographic risk onto that may not make much sense from a diversification point of view," explains Lecocq.
"In other cases," he continues, "clients have a clear benchmark for their wealth creation. Some benchmark themselves against their equally wealthy peers. If their friends are not expanding outside the region, and if Barclays decides to put them into a global and more diversified portfolio, while regional markets continue to do expectedly well, clients may not be satisfied," explains Lecocq.
"So what we do is we spend a lot of time with our clients trying to understand their benchmark and their mentality and attitude about diversification," he adds.
And after several decades in the region, the people at Barclays must have formed a pretty good idea, especially given the "phenomenal" growth the bank has experienced in the last year and half.
"What we do here is cater to high net worth individuals, which roughly means people with investments and assets of US$1m and more and we've got a variety of bankers. Some of them concentrate on people with US$1m to US$20m, while others concentrate on US$500m and billionaires," says Lecocq.
Among the bank's clients, women make up a high percentage, says Lecocq. In his mind, Barclays Wealth is a friendly open place for women in the region to stop by, talk finance and get advice. One of the main aspects that differentiate Barclays from any other bank, according to Lecocq, is its highly personalised service.
Story continues below ↓
advertisement
"We have a team of specialists who work with clients as opposed to banks where you get sold a product. What we do is tailor portfolios around individuals. People with US$500m are obviously going to have a very different demand-set than people with US$5bn," he says.
Whatever it is the Barclays team is doing in the region, it is working. In the past year, the bank has expanded its regional staff-base by over 150% and Lecocq expects growth north of 10-12% in the year 2008.
One of the biggest contributors to the company's regional development is what Lecocq calls the "breadth of wealth creation" the region is currently experiencing.
It's one thing when a very tiny fraction of society gets rich, often from extracted industries like oil and gas, and quite another when you have an incredibly powerful and growing upper middle class of entrepreneurs, property developers, big shop owners, manufacturing and software companies, human resource, and consulting," he explains.
Lecocq believes that the amount of "breadth of society" in the region is "incredibly powerful". People with millions of dollars, reaped from building a business over the last six years, and who have very specific demands from a bank for personal attentiveness and service, make up the core client base of Barclays Wealth in the Middle East and the GCC specifically.
"That's why we are growing here quite rapidly ourselves, as are other banks," he says. At present, Dubai is the most rapidly-growing market for Barclays Wealth in terms of staff. Where assets are concerned, Abu Dhabi is the hottest spot at the moment, according to Lecocq.
The way to success, however, wasn't obstacle-free. Lecocq recalls many challenges, and a number are still present.
"The first challenge, which is also an opportunity, is that it's not yet a mature market. You go to Switzerland and you know who the clients and the bankers are.
"It's not that dynamic but it's pretty easy to find your way around. Here, because people got so wealthy so quickly, you don't actually know who all the clients are," he says.
Moreover, it's difficult to land an expert banker in the region, Lecocq complains. This, he thinks, is due to the fact that it's a wealth creation environment, which makes it hard to find best practice overall.
Tremendous growth in the region resulted in demand from banks exceeding the supply of experienced bankers.
Barclays deals with it by finding the best bankers and bringing them into the business, explains Lecocq.
"Partly, it's by bringing people who have language or banking skills from places like Europe into the region, and we're populating our team. Right now, both the challenges and opportunities are almost the same.
"It's a quite far from being a mature market," he says. The markets still have a long way to go in order to mature, but the process is accelerating, believes Lecocq. He sees his client-base expanding and plenty of room to grow and attract more customers.
"What's happened, which is good, is that clients have a very strong and well-defined sense of what they want out of their bank, whereas a couple of years ago it was less defined," he says.
This all paves the way to further regional growth for Barclays Wealth. The trick is to maintain quality control, Lecocq points out. Getting the right bankers, investment specialists and technical people into the business is essential.
Additionally, with an office in Dubai, Abu Dhabi, and Qatar as well as bankers in London and Geneva covering the Middle East region, Lecocq seems to have found the formula for success.
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
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
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.
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