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GCC Picks Riyadh as Seat of Proposed Central Bank

Bloomberg, Wam / 6 May 2009

RIYADH — Five Gulf Arab states planning to launch a single currency chose the Saudi capital Riyadh as the location for a regional central bank, Gulf Cooperation Council Secretary General Abdul Rahman Al Attiyah said.

The UAE delegation, led by His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, expressed reservations over the choice.  

The five GCC countries agreed to set up a monetary council in the Saudi capital that will later be upgraded into a central bank, Al Attiyah told reporters after a GCC meeting in Riyadh on Tuesday. Saudi Arabia, the Arab world’s largest economy, was competing with the United Arab Emirates, Qatar and Bahrain to host the bank.

Those four nations along with Kuwait are planning a European Union-style single currency to boost regional trade. The currency won’t be ready by the proposed start date of 2010, the GCC said in March. Al Attiyah said on Tuesday that no new target date has been set.

The original 2001 agreement to set up the new currency also included Oman, the sixth member of the GCC, which pulled out in 2007. Little progress had been made since September when central bank governors approved the monetary union, which was later accepted by the heads of state.

UBS AG said in a report on Tuesday it sees “little chance” for the Gulf single currency to go ahead in 2010. That means Saudi Arabia is likely to maintain its dollar peg for the “foreseeable future” and its monetary policy will likely follow the US Federal Reserve, UBS said.

Qatar’s Finance Minister Yousef Hussein Kamal said late on Monday that he hoped the single currency could still be set up in 2010.

Saudi Arabia beat the UAE, the expatriate hub of the region, to host the bank. Also in the running was Bahrain, a long-standing centre for Islamic finance, and Qatar, where the economy is forecast to grow at least 7 per cent this year.

All GCC members except Kuwait peg their currencies to the dollar.  

The International Monetary Fund, the Washington-based lender with 185 member nations, has examined the costs and benefits of four exchange routines for a GCC currency: single currency US dollar peg, managed float, basket peg and pegging to the export price of oil.

Saudi Arabian Central Bank Governor Mohammad Al Jasser has said he supports the country’s dollar peg and that he has confidence in the US handling of the financial crisis, suggesting that the dollar would feature in the new currency. 

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