QATAR: GULF CURRENCY UNION "AT LEAST 3 TO 4 YEARS

C O N F I D E N T I A L DOHA 000741 SIPDIS E.O. 12958: DECL: 12/23/219 TAGS: EFIN EINV ECON QA SUBJECT: QATAR: GULF CURRENCY UNION "AT LEAST 3 TO 4 YEARS OUT" -------------- (SBU) Key Points -------------- -- In Qatar, it is thought that any Gulf monetary union will not occur soon. Estimates range from three to ten years before any union comes into effect. -- Qatar has made no announcements of its intent to ratify the new Gulf common currency committee in the near term. -------------- (SBU) GCC Common Currency Inches Forward -------------- ¶1. (SBU) In the wake of the recent Gulf Cooperation Council (GCC) head-of-state summit in Kuwait City in December, Qatari reaction to news of progress on establishing a Gulf Common Currency remains subdued. In a December 20 meeting, MFA Director for GCC Affairs Yousef Al-Jaber told P/E Chief Rice that the four members of the monetary union (Qatar, Kuwait, Bahrain, and Saudi Arabia) had agreed at the head of state level to form a common committee of Central Bank heads. This committee would then push forward to establish a GCC currency in 3-4 years. ¶2. (SBU) Others have reported longer time frames for Gulf monetary integration, including estimates ranging from "four to five years" suggested by Banque Saudi Fransi,s chief economist, to as many as ten years from Kuwaiti Foreign Minister Shaykh Muhammed al-Sabah and some local businessmen. ¶3. (SBU) Progress does seem to be occurring, if at a glacial pace. In October the GCC finance ministers and central bankers called for all members of the currency union (Saudi Arabia, Kuwait, Bahrain and Qatar) to follow Saudi Arabia,s lead and ratify the establishment of the common currency committee by the end of 2009. To date only Kuwait has done so. Post is aware of no efforts in Qatar to follow suit. -------------- (C) Challenges Remain -------------- ¶4. (C) Assuming the four member governments do ratify the establishment of the committee, there remain difficult unanswered questions. In particular there is little agreement as to what (or even if) this currency would be pegged. Al-Jaber said the four states are far apart on whether to peg the new currency solely to the dollar or to a basket of currencies that would include the dollar. ¶5. (U) Talk of de-pegging Gulf currencies from the dollar has a long history. In 2007 Kuwait announced it would peg its currency to a basket, in attempt to fight inflation. If and how a Gulf common currency would be pegged are still open to debate. The Dubai Financial Center has suggested a basket of currencies made up of 45 percent USD, 30 percent Euro, 20 percent Yen and 5 percent Sterling with revisions every 3-5 years as needed. NANTONGO