The governors of the GCC central banks argued in late October that the 2010 deadline should be postponed in the face of rising inflation and a weakening dollar. The finance ministers refused to explicitly endorse the recommendation, but reached an elegant compromise instead.
Finance ministers instructed bank governors and the GCC monetary union committee to draw up a timetable to implement a single currency, which would identify potential bottlenecks and delays. This timetable will not be presented to ministers until next year.
The GCC’s supreme council has refused to waver from the 2010 deadline, but crucially it has not confirmed that it will be met by all GCC states. Instead, a two-speed process, as used by the EU over the euro, is looking increasingly likely.
Oman has already opted out of the project. And if the GCC sticks to the convergence criteria, others will follow.
One rule governing convergence is that all member states keep inflation within 2 per cent of the GCC average. For the five GCC states still committed to the single currency, that figure has been forecast to be 5.7 per cent this year. In Qatar, inflation is running at 12 per cent.
The only solution is another compromise or shoe-horning the divergent economies together. The GCC members clearly have greater priorities. Summit delegates should defer their decision for even longer, while they sort out their domestic economies.