The hyper-rich club of oil exporters: Saudi Arabia, Kuwait, Bahrain and Qatar, all Arab states of the Gulf region that own almost 40% of the world’s total oil reserves and possess a combined GDP of $1.2 trillion, have agreed to launch a single currency modeled on the euro, hoping to displace the greenback as the pricing currency for oil. The four nations said they will launch a Gulf Monetary Council in 2010 that will pave the way for a full-fledged regional central bank.
The single currency dubbed ‘Gulfo’, inspired by Europe’s monetary union and widely regarded as a success across the Gulf states, is expected to increase trade volume and financial integration, facilitate foreign direct investment, and create the right conditions for the development of the Gulf region into an optimum currency area.
[Telegraph]: “The Gulf monetary union pact has come into effect,” said Kuwait’s finance minister, Mustafa al-Shamali, speaking at a Gulf Co-operation Council (GCC) summit in Kuwait.”
An agreement paving the way for the currency union was signed in June by the four Arab countries.
The United Arab Emirates (UAE) are staying out for now – after it was passed over as the headquarters of the precursor to the region’s new central bank which will be located in Riyadh, Saudi Arabia, at the insistence of King Abdullah rather than in Abu Dhabi. The UAE however, are expected join later, along with Oman.
The decision to launch the Council next year comes at a time when the dollar is struggling with its stature as the world’s currency. “The US dollar has failed. We need to delink” said Nahed Taher, CEO of Bahrain’s Gulf One Investment Bank.
The new agreement brings to an end almost a decade of discussions among the Gulf states, which did not yield results because of disagreements over technical issues, mainly the currency peg.
‘Gulfo’ is likely to track a basket of currencies and may ultimately float as a regional reserve currency in its own right.