GCC countries set to create common currency

A meeting in Muscat attended by leaders of Bahrain, Kuwait, Qatar, Saudi Arabia and UAE concludes with plans to set up a Gulf central bank and introduce a common currency not unlike the euro.
A top level meeting attended by leaders of the Gulf Corporation Council from Bahrain, Kuwait, Qatar, Saudi Arabia and United Arab Emirates in Lebanon last week has resulted in plans to create a common central bank for the region. Leaders who attended the meeting say there are plans to create a common currency for the region by 2010 upon a successful creation of the central bank.

Citing reasons not unlike the rationale for the European UnionÆs introduction of the euro near the turn of the millennium in 1999, Gulf leaders believe a common currency in the region will promote intra-regional trade, remove transactional risk and lower individual currency risks.

On the other side of the coin, however, punters say most Gulf countries already enjoy stable currency regimes. The debate is an old one, they say, and it dates back to the early years following the European UnionÆs move to introduce the euro. However, they believe there will be little to gain from a common currency, as member countries will likely lose power over their monetary policy setting, and that the introduction will likely first start by painful reforms in harmonising the member statesÆ financial infrastructure.

Islamic asset management remains in a nascent stage to this day. By uniting forces in the creation of a common monetary institution and currency, the sector is expected to grow in leaps and bounds over the coming decade. Estimates for growth vary widely across the states, with a lack of data gathering over the years making projections ad-hoc.

Investors in the region are closely monitoring the impact of the talks on the regionÆs equity and fixed income markets. In particular, the talks are adding uncertainty to the regionÆs sukuk market, which has already been affected by poor sentiment and rumours of a potential bailout of the Dubai sovereign by the UAE sovereign wealth fund in Abu Dhabi.

The sukuk market is witnessing stronger volatility after local Islamic scholars have spoken out against wide-spread incompliance of such products to the sharia laws. Sharia laws forbid Muslims from profiting from maysir (speculation), gharar (uncertainty) and riba (interest). These three qualities are considered to be haram (forbidden) in the Islamic region.
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