DIFC Report Outlines Proposed Structure for Gulf Central BankPress Release 15 Sep 2008 05:59 pm
The Dubai International Financial Centre Authority today released a report outlining options for the institutional structure and governance of a proposed Gulf Central Bank, a central requirement to meeting the January 2010 deadline for implementation of a GCC common currency.
Entitled “The Institutional Framework of the Gulf Central Bank”, the report says the GCB could be formed and in operation by 2009 to prepare the way for the currency’s introduction and to test and fine tune the bank’s decision-making mechanisms. While financial markets don’t expect the common currency to be implemented by the deadline, the report says 2010 is still feasible and “largely a matter of political will”.
While the report, does not reflect the opinions of the DIFC Authority or any government or governmental authority, it outlines 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. It recommends 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.
According to the report, the GCB should be managed by an executive board, with the governors of the national central banks and monetary authorities joining the executive board to form a Monetary Policy Committee, which would be the main decision-making and monetary policy-making body.
The report comes just ahead of a meeting this week of finance and economy ministers from Saudi Arabia, the UAE, Kuwait, Qatar and Bahrain set to discuss monetary union.
Nasser Al Shaali, CEO of the DIFC Authority, said, “The DIFC is an active participant in policy discussions regarding local and regional economic and financial issues. This analysis moves forward the debate regarding a Gulf Central Bank and currency union, and reflects the DIFC’s mission to promote both regional economic development and Middle East integration into the global economy.”
Significantly, the report notes that international investors and central banks around the world would want to hold assets denominated in the new Gulf currency, as both a safe haven and a hedge against oil price shocks and inflation. It says the new currency would “clearly be among the five major currencies in the world”.
On the much-discussed issue of where the GCB would be headquartered, the report says that some central bank departments could be located separately from the headquarters, mitigating the impact of the headquarters’ location. The report also says that it “makes 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.”
The full report, as well as a previous DIFC Authority report on broader aspects of Gulf Monetary Union, is available for download atwww.difc.ae.