DOHA, 26 February 2008 — Qatar’s prime minister urged Gulf Arab oil producers to bridge differences over a single currency, saying monetary union could avert possible unilateral revaluations designed to check soaring inflation.
Qatar’s dollar-pegged riyal is undervalued by as much as 30 percent and currency revaluation is being studied, among several options, to check inflation, Sheikh Hamad ibn Jassim ibn Jabr Al-Thani said in an interview late on Saturday.
Inflation in the richest Arab country by per capita hit 13.74 percent in the fourth quarter. “It’s now the time for the Gulf to have its own currency,” Sheikh Hamad said in the Qatari capital, Doha. “We are thinking about it and in talks ... we are discussing with Gulf countries, but there is no consensus.”
Qatar, the world’s largest exporter of liquefied natural gas, would prefer to make any change to its currency policy in concert with Saudi Arabia and its other Gulf Arab partners preparing for monetary union as early as 2010, Sheikh Hamad said. “We prefer always to act with all the GCC countries,” said Sheikh Hamad, whose country currently chairs the six-nation Gulf Cooperation Council that includes the United Arab Emirates and Kuwait.
Asked how long Qatar could continue with its existing foreign exchange regime, he said: “We cannot give a time. It is something that we have to see how it goes and look at where the dollar is going.”
Rifts in Gulf monetary policy widened in May when Kuwait broke ranks with its neighbors by severing its dollar peg in favor of a basket of currencies, saying a weak dollar was driving imported inflation.
Oman has said it will not join a single currency at all, and United Arab Emirates Central Bank Governor Sultan Nasser Al-Suweidi said in November he was under mounting social and economic pressure to drop the peg.
The GCC “should have a currency with a good weight internationally,” Sheikh Hamad said. “The GCC now is capable to do this and have a separate currency.”
The exchange rate contributes to about 40 percent of inflation in Qatar, Sheikh Hamad said. “It’s undervalued by 30 percent,” he said of the riyal. “We are still studying how to deal with this matter.”
Qatar will complete a study on how to address foreign exchange weakness and inflation in a “few months”, Sheikh Hamad said.
Gulf Arab oil producers are still at the start of forming a single currency and may not follow the European Union model, Al-Suweidi said on Sunday.
“GCC monetary union is a long-term objective,” Al-Suweidi told an investment conference in the UAE capital, Abu Dhabi. “We are at the beginning of the road,” Al-Suweidi said.
“The GCC countries might not follow the example of the European Union and the euro,” he said, without giving details.
An inflation target of no more than 2 percent above the regional average is the most contentious of EU-style criteria agreed by the six states, which also include Qatar and Bahrain.
As part of the Maastricht Treaty, inflation in each European member state cannot be higher than 1.5 percentage points above the average annual inflation rate of the three member countries with the lowest rate.