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On Wednesday, finance chiefs of five of the six-member, oil-rich Gulf Cooperation Council approved a proposal to create a monetary union as a move toward adopting a single currency, according to the AFP.
The six Islamic states constituting the Gulf Cooperation Council are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. Oman pulled out of the agreement last year.
Five states in the compact have agreed to set 2010 as the target date for the creation of a monetary union and the adoption of common currency.
The emergence of an Islamic single currency among these oil-rich Middle Eastern countries marks a significant step in the emerging worldwide movement to abandon national currencies in favor of regional currencies, along the model where the EU states have abandoned their national currencies in favor of the European Central Bank and the euro.
In 2002, the finance ministers of the Gulf Cooperation Council states sought out the assistance of the European Central Bank, as the model for their single currency, according to BBC reports.
The council was created in 1981 to promote the development of the member countries.
The monetary union will entail the creation of a central bank to issue the single currency.
At the Wednesday meeting in the Saudi Red Sea city of Jeddah, the finance and economy ministers reviewed the European Union’s response to the council’s view on eliminating obstacles that have blocked a long-stalled free trade agreement with the EU.
Progress was also made on key convergence factors required to underpin the common currency, including setting the ratio of budget deficit and public debt to the gross domestic product, target interest rates and reserve requirements. Progress yet remains in reaching a consensus on inflation, the last remaining stumbling block to creating the common currency.
International Monetary Fund Chief Dominique Strauss-Kahn, who met with the Gulf Cooperation Council finance ministers in Jeddah, hailed the move by the Gulf states toward economic integration, though he continued to express doubts the single currency would be adopted within two years.
“Achieving monetary union by 2010 will be a major challenge, as much remains to be done to enable the creation of a single currency within two years,” Straus-Kahn. “Overcoming the current inflationary pressures, developing a clear vision of the powers of the future common central bank, choosing an exchange regime of the common currency, and harmonizing financial regulations and structures will be critical in this process.”
One factor easing the transition toward a single currency is that the six Gulf Cooperation Council member states all currently peg their currencies to the U.S. dollar.
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