Creating a single currency for six Gulf Arab oil producers could take longer than the initially agreed 2010 deadline, United Arab Emirates Central Bank Governor Sultan Nasser al-Suweidi said on Thursday.
Suweidi, however, ruled out any change to his foreign exchange policy for the foreseeable future, sending his strongest message yet to investors betting the UAE would follow Kuwait and allow its dollar-pegged currency to appreciate.
The UAE, Kuwait, Saudi Arabia and three other states pegged their currencies to the US dollar to prepare for a single currency in the world's top oil exporting region in 2010.
The timetable has been in doubt since Oman announced last year it would not meet the deadline. Then Kuwait dropped its dollar peg last month, throwing the project into disarray. Monetary union would be achieved in three phases with a single currency being the final step, Suweidi said at a conference in Dubai. "If we achieve the first two stages of monetary union by 2010, that will be enough and sufficient," he said, taking questions from the audience.
Freeing capital flows among the six states, and reducing the cost of certain foreign exchange transactions, would precede the single currency, Suweidi said.
He described the second phase of monetary union as "the reduction or elimination of the cost of exchange cross-rates between our currencies". With the timetable for monetary union slipping, analysts have been predicting some Gulf countries would change currency policy.
Analysts in a Reuters poll in March tipped the UAE as the country most likely to revalue its currency after Kuwait to cope with dollar's slide to a record low against the euro in April. "We rule out any change for the foreseeable future," Sultan Nasser al-Suweidi told reporters in Dubai. "The peg is a very important stability anchor and is part of why the UAE economy has been successful," he said.
Suweidi has previously said the UAE would not revalue the dirham unilaterally. Earlier on Thursday he repeated his position that he saw no reason to change policy "at this point". Deutsche Bank said on Wednesday the UAE was likely to allow its the dirham to appreciate by up to 3 percent in the next three months to check inflation and increase purchasing power.
Kuwait cited inflationary pressure from the rising cost of imports from Europe and some Asian countries as the main reason for its decision on May 20 to adopt a basket of currencies. "This is something they are entitled to do. We have no problem with it. We will live with it," Suweidi said.
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