Read this not for the information on the Gulf Cooperation Council's plans for a single currency but for the information on the increasing global shift out of the dollar as a reserve and trading currency.

GCC states may abandon single currency plans: UAE bank chief
Saudi Arabia, the United Arab Emirates and four other Gulf Arab states may abandon plans for a unified currency in favour of a simpler common monetary policy, the UAE central bank governor has said.

The six nations, that also include Kuwait, Qatar, Bahrain and Oman, have pegged their currencies to the dollar in preparation for the launch of a single currency in 2010.
The union was thrown into doubt earlier this month when Oman said that it could not meet the deadline.

"Maybe somebody can argue we only need a monetary union committee that has a legal authority to impose monetary union,'' Sultan bin Nasser al-Suwaidi said in an interview in Abu Dhabi on Saturday.

The project will proceed at a pace that all six members are "comfortable'' with, and that may mean stopping short of launching a single currency, he said.

A single currency is intended to accelerate economic integration between the six Gulf countries, reducing barriers to investment and increasing trade.

A delay in the creation of the currency may damage economic growth in the region. Monetary union between the six countries will likely take a "simpler form'' than that being pursued before Oman voiced its doubts, al-Suwaidi said.

"We use consensus for our decisions, and we wait for the consensus to develop,'' he said.

Al-Suwaidi also said the UAE will convert 8% of its foreign-exchange reserves to euros from dollars before September after the US currency slumped this year.

The UAE has started "in a limited way'' to sell part of its dollar reserves, he said in the interview.

" We will accumulate euros each time the market appears to dip,'' as part of a plan to expand the country's holding of euros to 10% of the total from 2% today, he said.

The UAE is among oil producers including Iran, Venezuela and Indonesia, looking to shift their currency reserves into euros or sell their oil, which is currently priced in dollars, in the 12-nation currency.

The total value of the UAE's current reserves is $24.9bn, 98% in dollars and 2% in euros, al-Suwaidi said. Gulf Arab energy producers will earn as much as $500bn from oil sales this year, the International Monetary Fund forecasts.

The region's central banks reserves represent a fraction of the currency holdings of state-owned investment firms such as Abu Dhabi Investment Authority which is estimated to have over half-a-trillion dollars under management.

The US currency dropped to $1.3166 versus the euro from $1.3157 after al-Suwaidi's comments were published.

"It is a recognition of the vulnerability of the dollar over the coming year,'' Simon Williams, economist with HSBC Holdings Plc in a telephone interview from Dubai, UAE yesterday. "This is not confined to the UAE There's a general awareness across the Gulf of the benefits of diversifying currency holdings,'' Williams said.

The US current account deficit widened to $225.6bn in the third quarter, while oil producers in the Middle East and central Asia will run a surplus of $322bn for all of 2006, according to the IMF.

Total foreign holdings of Treasuries increased to a record $2.16tn in September, just under 50% of the $4.34tn outstanding. China, the second-largest holder of US debt, reduced purchases of US treasuries by 1.7% in the first 10 months of the year, according to Treasury Department data.

The conversion of 8% of the reserves into euros will happen "within 6 or 9 months,'' al-Suwaidi said in his office at the central bank in the UAE capital.

The share of foreign-exchange deposits held in dollars by Opec oil producers, including Saudi Arabia and the UAE, fell to a two-year low of 65% during the second quarter, from 67% during the first quarter, Bank of International Settlements figures released earlier this month show.

-- Gulf Times