|
Riyadh: A number of Saudi financial experts said Kuwait's decision to peg its currency to a basket of currencies instead of the dollar has frustrated the Gulf Cooperation Council's (GCC) plan to achieve monetary union by 2010.
In statements to Gulf News, they expressed surprise at Kuwait's step, which they said was done without coordination with the other member states since pegging the Gulf currencies to the dollar was made under a GCC agreement.
Dr. Saeed Al Shaikh, senior economist at Arab National Bank, said the decision by Kuwait creates the impression that there are doubts that a unified GCC currency can be achieved by 2010.
He added that though some other GCC states said they would not follow Kuwait's example, they may change their policies due to high inflation in these countries.
"The UAE and Qatar may soon take similar decisions to that taken by Kuwait as both countries are facing inflation problems. They may try to treat this [inflation] by revaluating their currencies," Al Shaikh pointed out.
Credibility
He said that it has been best for the GCC states to adopt collective, joint solutions to revaluating their currencies instead of taking unilateral decisions, adding that a united stand would support the credibility of the GCC establishing a single currency.
Asked if Kuwait has other options to controlling inflation than to peg its currency to a basket of currencies, Al Shaikh said that there are options but they are more difficult like issuing government bonds and withdrawal of some liquid cash from the monetary system. He noted that these alternatives would affect growth rates and government spending.
Khalid Al Fares, a financial analyst, said despite the justifications, Kuwait's decision raises doubts about the commitment of the GCC to monetary union, since Kuwait is not the only GCC state that suffers from inflation.
He said the capability of the GCC states to control inflation has failed significantly as these countries are unable to adopt a wise monetary policy and since government expenditures are linked to oil revenues, monetary policy is dependent upon oil prices.
|
