Gulf states to pick central bank place

Bloomberg

The heads of state meet in Riyadh and four of the five countries that are planning to adopt the common currency, Saudi Arabia, the United Arab Emirates, Qatar and Bahrain, are lobbying to host the bank, which would set monetary policy for the region. Central bank governors failed to agree on the location of the bank at a meeting last month.

The drive to drop existing pegs to the dollar has waned and Gulf central banks have increasingly acted independently of each other, adopting divergent measures to solve liquidity problems as they deal with the global crisis. Little progress has been made since September when the region’s central bank governors approved the agreement for monetary union.

"You need to make the simple decisions that have been holding things back," said Marios Maratheftis, chief regional economist at Standard Chartered. "If the location of the central bank is resolved it will be a very significant breakthrough."

Saudi Arabia, the Arab world’s largest economy, is vying with the United Arab Emirates, the expatriate hub of the region, to host the bank. Also in the running are Bahrain, a center for Islamic finance, and Qatar, where the economy is forecast to grow 7 percent this year as other economies contract. "The biggest economy is Saudi Arabia, so that gives it some kind of advantage, and the U.A.E.’s closeness to global markets also gives it a strong case," said Tim Fox, chief economist at Emirates NBD.