RIYADH, 24 November 2002 — The European Central Bank (ECB) will conduct a study on the proposed monetary union of the Gulf Cooperation Council (GCC) states, according to a Saudi economic source.
The GCC states, which depend heavily on oil revenues, signed in 1981 a unified economic agreement calling for full economic and financial integration of member states.
The study, which will be carried out under the supervision of the GCC secretariat-general in Riyadh, will cover the modalities for introducing a single currency.
The study has been commissioned with the aim of drawing from the experience of European Union, which recently adopted a common currency.
The source said an agreement was reached on the terms of reference for the study.
The US dollar was approved as the yardstick for the GCC single currency. All GCC states except Kuwait have their currency pegged to the dollar. The Kuwaiti dinar is pegged to a basket of currencies, mainly the dollar.
The Gulf states have made good progress toward unifying their financial and monetary policies, an essential condition for monetary union.
The GCC leaders decided at a meeting in Muscat last December to bring forward the creation of the customs union from 2005 to 2003, as well as set up a monetary union in 2005 and a single currency by 2010.
The Saudi source ruled out that the single currency would have negative impacts on the economy of any of the member states. “On the other hand, the common economic base will make the efforts to evolve uniform policies easier,” he said.
The source stressed the need for the member states to reduce public debts by bringing down budget deficits. But he dismissed fears that the huge public debts would slow down the move for economic integration. He noted that the size of public debt in the GCC countries is very small compared to that of the United States and some European countries.
The European Union has insisted that the GCC must have its own customs union before it signs a free-trade agreement with the bloc, in a campaign that has already lasted more than a decade.
The 15-state EU is the GCC’s principal market and its second supplier after Japan. EU exports to the GCC were worth 29 billion euros ($25.2 billion) in 2001, with imports amounting to $22 billion, according to the EU.
