Gulf Petro-Powers to Launch Currency in Latest Threat to Dollar Hegemony

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by Ambrose Evans-Pritchard: China,
Gold, and the Civilization Shift

The Arab states
of the Gulf region have agreed to launch a single currency modelled
on the euro, hoping to blaze a trail towards a pan-Arab monetary
union swelling to the ancient borders of the Ummayad Caliphate.

“The Gulf
monetary union pact has come into effect,” said Kuwait’s
finance minister, Mustafa al-Shamali, speaking at a Gulf Cooperation
Council (GCC) summit in Kuwait.

The move will
give the hyper-rich club of oil exporters a petro-currency of their
own, greatly increasing their influence in the global exchange and
capital markets and potentially displacing the US dollar as the
pricing currency for oil contracts. Between them they amount to
regional superpower with a GDP of $1.2 trillion (£739bn),
some 40pc of the world’s proven oil reserves, and financial
clout equal to that of China.

Saudi Arabia,
Kuwait, Bahrain, and Qatar are to launch the first phase next year,
creating a Gulf Monetary Council that will evolve quickly into a
full-fledged central bank.

The Emirates
are staying out for now – irked that the bank will be located
in Riyadh at the insistence of Saudi King Abdullah rather than in
Abu Dhabi. They are expected join later, along with Oman.

The Gulf states
remain divided over the wisdom of anchoring their economies to the
US dollar. The Gulf currency – dubbed “Gulfo” –
is likely to track a global exchange basket and may ultimately float
as a regional reserve currency in its own right. “The US dollar
has failed. We need to delink,” said Nahed Taher, chief executive
of Bahrain’s Gulf One Investment Bank.

The project
is inspired by Europe’s monetary union, seen as a huge success
in the Arab world. But there are concerns that the region is trying
to run before it can walk.

Europe took
40 years to reach the point where it felt ready to launch a currency.
It began with the creation of the Iron & Steel Community in
the 1950s, moving by steps towards a single market enforced by powerful
Commission and European Court. The EMU timetable was fixed at the
Masstricht in 1991 but it took another 11 for euro notes and coins
to reach the streets.

Khalid Bin
Ahmad Al Kalifa, Bahrain’s foreign minister, told the FIKR
Arab Thought summit in Kuwait that the project would not work unless
the Gulf countries first break down basic barriers to trade and
capital flows.

At the moment,
trucks sit paralysed at border posts for days awaiting entry clearance.
Labour mobility between states is almost zero.

“The single
currency should come last. We need to coordinate our economic policies
and build up common infrastructure as a first step,” he said.

Mohammed El-Enein,
chair of the energy and industry committee in Egypt’s parliament,
said Europe’s example could help the Arab world achieve its
half-century dream of a unified currency, but the task requires
discipline. “We need exactly the same institutions as the EU
has created. We need a commission, a court, and a bank,” he
said.

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December
17, 2009

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