08/06/2009
RIYADH, June 7 (Reuters) - Four Gulf Arab states signed a pact on Sunday creating a pared-down monetary union with Saudi Arabia at its centre, after the United Arab Emirates became the second country to abandon the project last month.
The ceremony was attended by foreign and finance ministers and central bank governors of the six-nation Gulf Cooperation Council (GCC) in the Saudi capital Riyadh.
It comes as a confidence-building measure after the shock decision by the UAE, the second-largest Arab economy, to leave the plan in protest after a May 5 decision to base the joint central bank in the Saudi capital Riyadh.
In doing so, the UAE broke ranks with Saudi Arabia, Kuwait, Qatar and Bahrain and stirred doubts whether the project would proceed or, if so, whether the new currency bloc would be of much benefit to the energy-exporting region.
"For the sceptics, the signing is not that important. It should be seen however as another step forward and proof to those that say the union cannot move ahead," said John Sfakianakis, chief economist at HSBC's Saudi affiliate.
The UAE withdrawal was not the first setback. Oman opted out in 2006 and earlier this year the six-nation Gulf Cooperation Council (GCC) abandoned an initial 2010 deadline for issuing common notes and coins.
The UAE's foreign minister told Reuters last month the Gulf state would consider rejoining the Gulf monetary union if the terms change and its neighbours agree to allow a joint central bank to be based in the country.
But Saudi Finance Minister Ibrahim Al Assaf told Reuters earlier this month the location of a Gulf central bank would not be open for renegotiation.
Some analysts had questioned whether the withdrawal of the UAE, the Arab world's largest economy after Saudi Arabia, could derail the long-troubled project.
In 2001, the six members of the Gulf Cooperation Council -- a loose political and economic alliance -- had agreed to forge a monetary union similar to that of the European Union.
