Four Arab states of the Persian Gulf have agreed to launch a new, singular currency in an effort to create an Arab monetary union.
Saudi Arabia, Kuwait, Bahrain and Qatar will begin the first phase of the new currency next year, creating a Gulf Monetary Council that will become a full-fledged central bank.
The United Arab Emirates and Oman were not included in the initial pact, but are expected to eventually join the union that is being modeled after the European monetary union in more ways than one; the tentative name for the new currency is the ‘Gulfo.’
The decision to launch a pan-Arab union comes from the both an admiration for the European model, and from a desire to break from a system dependent on the US dollar.
“The US dollar has failed,” said Nahed Taher, chief executive of Bahrain’s Gulf One Investment Bank. “We need to delink.”
The anticipated union does not come without barriers, however. Unlike the European Union, freedom of trade and movement between the Arab countries is not as easy. Bahrain’s Foreign Minister, Sheikh Khalid Bin Ahmad Al Kalifa, singles out these problems as a major stumbling block.
“We need to co-ordinate our economic policies and build up common infrastructure as a first step,” Sheikh Khalid said. “The single currency should come last.”
ManagementToday.com reports that a unifying petro-currency could be a key factor in destabilizing the currency markets around the world:
“The rise of a strong petro-currency could severely reduce demand for dollars and other reserve currencies (including the pound) – which could accelerate the eastern-wards shift in the balance of economic power.”
It is believed that once in effect, the ‘Gulfo’ would become the base currency for all oil contracts stemming from the pan-Arab region.