By IANS,
Dubai : As the Gulf nations work on their goal to have a common currency by the beginning of 2010, a new report here outlined the possible options for the institutional structure of a Gulf central bank, a key requirement for the system.
According to ‘The Institutional Framework of the Gulf Central Bank’ report, released by the Dubai International Financial Centre (DIFC) Authority here Monday, the central bank should be operational by 2009 if the Gulf Cooperation Council (GCC) hopes to achieve monetary union by 2010.
Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE) form he GCC. Except for Kuwait, the currencies of all the other countries are linked to the dollar.
In January this year, Oman pulled out of the process to have a common currency.
The report said the Gulf central bank would have to be functional before the common currency comes into effect in order to test and fine-tune the bank’s decision-making mechanisms, according to a DIFC statement.
Though not reflecting the official views of the DIFC Authority, the report outlined a number of possible central bank structures and monetary policy voting formulas, as well as other elements vital to setting up a well-governed central bank.
The report recommended creating a new Gulf Central Bank (GCB) with its own staff and administration, noting that “this would be the most effective, as well as the most welcomed and credible in the eyes of regional and global markets”.
“The DIFC is an active participant in policy discussions regarding local and regional economic and financial issues,” Nasser Al Shaali, chief executive of the DIFC Authority, said in the statement.
The proposed GCB, according to the report, should be managed by an executive board, with the governors of the national central banks and monetary authorities joining the board to form a monetary policy committee, which would be the main decision-making and monetary policy-making body.
As for the location of the GCB’s headquarters, it said some of the bank’s departments could be located separately from the headquarters, mitigating the impact of the headquarters’ location.
However, it stated that it “made sense” for the central bank to be located in a city with a “sizeable financial market, with a good banking network, international transport, communications and telecommunications infrastructure”.
According to the report, once such a common currency came into play, international investors and central banks around the world would want to hold assets denominated in the new currency, as both a safe haven and a hedge against oil price shocks and inflation.
It added that the new currency would “clearly be among the five major currencies in the world”.
The DIFC Authority report comes ahead of a key meeting this week of finance and economy ministers from Saudi Arabia, the UAE, Kuwait, Qatar and Bahrain to discuss the monetary union issue.