JEDDAH, 22 May 2007 — Kuwait’s decision to stop pegging its dinar to the dollar is not likely to be followed by the five other members of the Gulf Cooperation Council (GCC) in revaluing their currencies, according to some economists.

Kuwait’s central bank began pegging its dinar to a basket of currencies on Sunday, dropping a dollar peg adopted in 2003 to prepare for monetary union in the world’s top oil exporting region.

“I don’t expect the other member states to follow Kuwait’s revaluation move,” Abdul Rahman Al-Attiyah, secretary-general of the GCC, said.

Saudi Arabia has no plans to change the riyal’s exchange rate, the central bank said Sunday, after the Kuwaiti announcement. “In light of the change in the Kuwaiti dinar’s exchange rate, the bank reaffirms that there is no intention to change the exchange rate of the riyal,” it said in a statement attributed to Saudi Arabian Monetary Agency Gov. Hamad Al-Sayyari’s office.

“Certainly, the decision casts a serious doubt about the Gulf states’ ability to launch their single currency in 2010. It is, however, premature to think that such a step is difficult now,” said National Commercial Bank’s Chief Economist Saeed Al-Shaikh. “It (Kuwait’s decision) is a step backward and makes it much more difficult to prepare the necessary groundwork for a single currency.”

Some other economists at various banks and financial institutions in Jeddah said they would adopt a wait-and-watch policy before jumping to conclusions.

“Kuwait’s decision clearly confirms that the GCC states will not be able to launch their single currency in 2010. There is not enough time to meet the target date,” said another Saudi economist, Abdulwahab Abu-Dahesh.

“I think the central bank will make more moves. It’s just a matter of time,” Mazin Al-Nahedh of National Bank of Kuwait said.

Mustapha Nabli, World Bank chief economist for the Middle East and North Africa said: “This is clearly a signal that they are going to use monetary policy as a way to combat inflation and the decline of the dollar...(This is a) normal adjustment, the question is whether it is enough or too little. It will probably take three to six months to judge the impact of the revaluation.”

Rasheed Al-Maraj, Bahrain’s Central Bank governor, said: “Our position is clear. There is no change.”

Steve Brice, chief Middle East economist at Standard Chartered Bank in Dubai, said: “We were expecting a revaluation not a currency basket. A revaluation gets in the way less of monetary union. One of the criteria of the monetary union was a common monetary policy. Now of course we don’t have that. There is a lot of uncertainty in the market. We didn’t think the single currency was likely, at least by the 2010 deadline, and we are getting less convinced that it is going to happen at all.”

Simon Williams, HSBC Bank Middle East, said: “The speed of the switch to the basket has surprised some but the direction of change is in line with expectations. It’s been clear for some time that Kuwait wants a stronger dinar and a more flexible regime.

“I’d still be surprised if we see any Gulf countries changing the value of their currencies or the nature of their currency pegs in the near term. However, it is bound to add to the debate that we know is taking place in a number of Gulf central banks over how they manage the value of their currencies.”

— Additional input from agencies