The rich oil exporters country, Saudi Arabia, Kuwait, Bahrain and Qatar, have agreed to launch a single currency which hope hope to displace the US Dollar as the pricing currency for oil. The four nations will launch the first phase next year by creating Gulf Monetary Council that will pave the way for a full-fledged regional central bank. The decision to launch the Council next year comes at a time when the dollar is struggling with its stature as the world’s currency.
The single currency dubbed ‘Gulfo’, inspired by Europe’s monetary union and widely regarded as a success across the Gulf states. With the introduction of single currency, it is expected to increase trade volume and financial integration, facilitate foreign direct investment, and create the right conditions for the development of the Gulf region into an optimum currency area.
An agreement paving the way for the currency union was signed in June by the four Arab countries. The new agreement brings to an end almost a decade of discussions among the Gulf states, which did not yield results because of disagreements over technical issues, mainly the currency peg.
‘Gulfo’ is likely to track a basket of currencies and may ultimately float as a regional reserve currency in its own right.
The United Arab Emirates (UAE) are staying out for now – after it was passed over as the headquarters of the precursor to the region’s new central bank which will be located in Riyadh, Saudi Arabia, at the insistence of King Abdullah rather than in Abu Dhabi. The UAE however, are expected join later, along with Oman.
All Arab states in the Gulf region own almost 40% of the world’s total oil reserves and possess a combined GDP of $1.2 trillion.