May 22

saudi-arabia
Saudi Arabia dwarfs other states in the region and analysts say there is concern that a common currency would serve to concentrate power in Riyadh

A project to establish a common currency for the Gulf has been dealt a near-fatal blow with the decision by the United Arab Emirates to abandon monetary union after disagreement with Saudi Arabia over the location of a future central bank.

The loss of the Emirates to the currency project could accelerate decisions within some Gulf states to diverge from Saudi Arabia’s desire to maintain a currency peg with the dollar. This could lead eventually to the UAE, the Gulf’s most sophisticated economy, floating its dirham, analysts in the region said.

The UAE attributed its decision to quit the Gulf Cooperation Council (GCC) project to the choice of Saudi Arabia as host of the key monetary institution.

Evidence of mounting rivalry and distrust between the Gulf’s two biggest economies emerged two weeks ago, when a meeting of the GCC voted to locate the central bank in Riyadh. UAE officials expressed reservations about the decision. The choice of Riyadh would enhance the physical presence of Saudi Arabia within the GCC, as the organisation’s secretariat is already headquartered in the Saudi capital.

The UAE is the second state in the six-member GCC to pull out of the common currency, which was due to be launched next year. Oman had said already that it would not take part, but the loss of the Emirates, which has the greatest international trading links, makes it unlikely that the project will get off the ground.

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Jan 02

The Gulf Arab nations are now all fighting for their survival, because their future economic calculations and decisions are all based on much higher oil prices.

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The breaking of their dollar pegs by the Gulf Arab nations is clearly dollar negative. Any inclusion of gold either as a part of the monetary basket, or in the reserves of the new GCC Central Bank will create additional demand for the precious metal.

Related article: Will the New GCC Single Currency Include Gold?

Gulf Cooperation Council leaders yesterday concluded their 29th annual summit meeting in Muscat, Oman with a final approval for the creation of a single currency for the six-nation economic bloc, still targeted for 2010.

Saudi Arabia is the largest economy in the GCC and boasts substantial gold reserves. But whether gold will be included in the currency basket has not yet been decided.

Golden opportunity

GCC assistant secretary-general Mohammad Al Mazroui told Gulf News: ‘We first have to decide on the location of the Central Bank, then the Central Bank and Monetary Council will have to decide on the gold reserves for the Central Bank’.

The creation of the GCC single currency – likely to be known as the Khaleeji which means Gulf in Arabic – is a major gold event for two reasons.

First, the breaking of their dollar pegs by the Gulf Arab nations is clearly dollar negative. Secondly, any inclusion of gold either as a part of the monetary basket, or in the reserves of the new GCC Central Bank will create additional demand for the precious metal.

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Jan 02

KUWAIT CITY: Stock markets in the Gulf states yesterday ended 2008 sharply lower as the energy-dependent economies were battered by the global financial crisis while oil prices plummeted. Most of the seven markets witnessed their worst year ever with the bourse of the bustling Dubai shedding almost three quarters of its value and the Saudi market, the largest in the Arab world, slumping by more than half.

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More than $515bn were wiped off of their market value as their capitalisation stood at just $600bn compared to $1.116 trillion at the end of 2007. “It was a year of contradictions as share prices rose sharply in the first half but nosedived in the second half similar to the oil price scenario,” Kuwaiti economist Hajjaj Bukhdur said.

“The impact of the global financial crisis on the Gulf economies was much deeper than initially thought. Gulf stocks slumped even more than bourses in the West where the crisis began,” Bukhdur said. The Saudi Tadawul All-Shares Index (TASI) dropped 56.5 percent to close the year at 4,802.99 points, down from 11,175.96 points at the end of 2007. It was pulled down by a sharp slide in the leading banks and petrochemicals sectors.

Kuwait Stock Exchange, the second largest in the Arab world, shed 38 percent to finish the year at 7,782.60 points, almost a four-year low. However, it was down 50.3 percent from its all-time high set in late June. In the United Arab Emirates, the Dubai Financial Market slid 72.4 percent to close at 1,636.29 points, near its four-year low.

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Mar 06

Alan Greenspan, the former chairman of the US central bank, or Fed, has said that inflation rates in Gulf states, which are reaching near record levels, would fall “significantly” if oil producers dropped their US dollar pegs.

Speaking at an investment conference on Monday in Jedda, Saudi Arabia, he said the pegs restrict the region’s ability to control inflation by forcing them to duplicate US monetary policy at a time when the Fed is cutting rates to ward off an economic downturn.

Debate is rife in the Gulf on how to tackle inflation.

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Greenspan, right, says inflation rates in Gulf states will fall if they drop their US dollar pegs [AFP]

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