Abu Dhabi, Asharq Al-Awsat- Informed GCC sources have revealed to Asharq Al-Awsat the details of the GCC Monetary Union Agreement, which prohibits the GCC institutions and governmental departments from giving any instructions to the GCC Central Bank, and the national central banks and any member of its executive bodies. This is in order to secure the independence of the GCC Central Bank.
Article 21 of the agreement also prohibits the national central banks of the GCC countries from lending to public authorities. These banks should liquidate the existing accounts of the loans granted to these authorities before the issuing of the unified GCC currency. The national central banks also are prohibited from direct buying of bonds or any other tools of indebtedness issued by the public authorities.
However, the GCC Central Bank and the national central banks are allowed to buy these bonds in the secondary market within the process of implementing the open market; also the bonds can be accepted as security.
While Saudi Arabia still is the only country that ratified this agreement, which was ratified by the GCC Supreme Council at the Muscat summit last year, it is expected that three other GCC countries – Kuwait, Bahrain, and Qatar – will ratify it before the end of this year, after the Sultanate of Oman and the UAE announced earlier their withdrawal from the unified GCC currency.
The agreement awaits the approval of the Bahraini Parliament before it is issued by a decree by the King of Bahrain. The Foreign Affairs Committee of the Kuwaiti National Assembly last month approved the Monetary Union Agreement. As for Qatar, the Council of Ministers in its meeting of last Wednesday took a decision to “adopt the necessary measures to ratify the Monetary Union Agreement.”
This agreement constitutes the implementation of chapter 3 of the Economic Union Agreement among the GCC countries, an agreement that has been ratified by all the six countries. The agreement stipulates the establishment of a monetary and economic union among the GCC countries according to a specific timetable. The agreement, of which Asharq Al-Awsat has seen a copy, stipulates that it is to be implemented after it is ratified by the GCC member countries. The member countries are obliged to adopt all the necessary measures and arrangements to secure the compatibility of their national legislations, including the basic laws of their central banks, with the rulings of the agreement. The national central banks of the member countries adhere to the instructions issued by the GCC Central Bank in the issues related to its powers.
Article 19 of the agreement points out that the GCC Central Bank, whose headquarters will be in the Saudi capital, Riyadh, represents the unified currency zone at the international monetary and financial cooperation organizations and forums when these bodies discuss issues related to the monetary policies, exchange policies, and other issues related to the duties of the Central Bank.
The Central Bank has the right to levy financial sanctions and impose them on the accounts of the national central banks at the Central Bank when these national central banks violate their commitments that are undertaken on the basis of the decisions or instructions of the Central Bank. The Central Bank decides these violations and the sanctions for each of these violations.
The countries that ratify the Monetary Union Agreement will be obliged to revise their laws and regulations related to currency, central bank, and its duties and powers, and to ensure their compatibility with the rulings of the agreement in order to avoid any future contradictions before the agreement comes into force.
Chapter 2 of the agreement is related to the establishment of the Monetary Council. The Monetary Council should be established and perform its duties until the establishment of the GCC Central Bank, which will automatically replace the council. Article 6 says that the most prominent duties of the Monetary Council include the preparations for the issuing of banknotes and coins of the unified currency, and to draw up and develop the operating framework for their issuing and circulation in the single currency zone, i.e. in the four countries using this currency. The board of directors of the Monetary Council consists of the governors of the national central banks; the board of directors chooses from its members a chairman and a vice chairman for a term of one year only; the board of directors holds at least six meetings every year.
With regard to the decision-making process, decisions are adopted by unanimous vote of those attending, and by absolute majority vote in the procedural issues. The national central banks contribute equally to the costs of the establishment of the Monetary Council and its annual budget, and the board of directors determines the timetable and the currency of payment of the contributions. According to Article 9 of the agreement, the Monetary Council determines the name of the unified currency, its divisions, its denominations, its specifications, its security marks, and its rate of exchange against foreign currencies.
During the past few years, many names have been circulating that alleged to be the future names of the currency; however, the GCC officials always assert that no name has yet been decided, and this is what the agreement indicates explicitly, as it says that this is one of the duties of the Monetary Council, which has not been established yet.
Article 10 indicates that the exchange values of the currencies of the member countries against the unified currency will be specified before issuing the unified currency as fixed exchange rates that cannot be abolished. The unified currency will start as an arithmetical unit, as the decisions issued by the Monetary Council will stipulate, and the banknotes and coins issued by the Central Bank will be only legal tender in the unified currency zone (Article 11). For a specific period to be determined by the Central Bank after the issuing of the unified currency the banknotes and coins issued by the member countries might remain as legal tender that has the power of payment within the borders of its region; this is for the purpose of replacing the currencies of the member countries by the unified currency.
According to Article 14, the principal aim of the establishment of the Central Bank is “to achieve the stability of prices in the unified currency zone within the framework of the best utilization of the economic resources, and hence to achieve economic stability.”
The duties of the Central Bank include drawing up and implementing the monetary policy of the unified currency, including its rate of exchange, and securing the congruent application of the policy in the unified currency zone through the national central banks. The Central Bank duties also include managing the foreign currency reserves of the unified currency, issuing the banknotes and coins of the denominations of the unified currency, and consolidating the effective operation of the basic structure of the financial payment systems, and the settlement systems within the unified currency zone. Also one of the most prominent duties of the Central bank will be the drawing up of the general rules of preventative auditing of the financial institutions.
Here it should be pointed out that Kuwait, Saudi Arabia, Bahrain, and Qatar have achieved great progress toward monetary union and unified currency, despite the fact that the UAE and Oman have decided to withdraw from the project, which has been postponed more than once.