Kuwait supports Gulf currency union plan

Kuwait's parliament unanimously approved on Tuesday a plan to join a Gulf monetary union which a top official said could take up to 10 years to implement.

Saudi Arabia has already secured parliamentary approval for the project, initially envisioned for 2010. The Gulf Cooperation Council (GCC) has acknowledged it would miss the deadline and policymakers have urged the other participating countries, Qatar and Bahrain, to ratify it before year-end. "Issuing the (Gulf) currency, as the central bank governor clarified, will take a long time and could reach up to 10 years," Kuwait Foreign Minister Sheikh Mohammad al-Salem al-Sabah told parliament shortly before the vote.

The project suffered a heavy blow earlier this year, when the United Arab Emirates, the second largest Arab economy, followed fellow GCC member Oman and pulled out as Saudi Arabia did not want to give up hosting the new monetary authority.

Bahrain was on track to ratify the project ahead of the Gulf rulers' meeting in Kuwait on December 14-16, which is expected to debate the remit of the common monetary council, a precursor to the regional central bank.

Abdulrahman Al Attiyah, the GCC secretary general, has said that Qatar had already ratified the union plan although Qatari officials have declined to comment.

Most countries in the world's top oil-exporting region already peg their currencies to the dollar but a range of technical issues such as harmonisation of banking regulations remain to be tackled in order for them to share a new currency, which is seen raising the bloc's economic weight as well as reducing costs for businesses.

"Of the utmost importance is the demonstration of political will," said Giyas Gokkent, chief economist at National Bank of Abu Dhabi. "It is an important signal coming from Kuwait they are behind the project."

Kuwaiti lawmakers delayed the vote last month, saying they needed more time to assess economic implications of the union. On Tuesday, they demanded that another vote take place ahead of the single currency launch, although analysts said that did not necessarily indicate a lack of commitment.

The Kuwaiti minister's comments signal "that there is hard work to be done and before that is done we cannot really have the final deadline," said John Sfakianakis, chief economist at Banque Saudi Fransi-Credit Agricole Group in Riyadh.

The GCC, a loose economic bloc, has said a new timetable would be set once the joint monetary council starts operations.

The issue of how to peg a common Gulf currency has gained momentum this year as the dollar slid to multi-month lows.

"It was interesting to see the Saudi stance to shift a little bit," Gokkent said. "That is positive in the sense that now they consider different view points and also take into account concerns of other member states."

Kuwait, the world's fourth largest oil exporter, is the only Gulf Arab country to peg its currency to a basket rather than the dollar and has promoted this idea last month.

Saudi Arabia said a basket was one of the options, putting the dollar's regional status in question.

The dollar peg is a sensitive issue in the region, whose top two economies – Saudi Arabia and UAE – have strong political and economic ties to the United States.