VZCZCXRO1227
PP RUEHDE RUEHDH RUEHDIR
DE RUEHRH #0653/01 1311433
ZNY CCCCC ZZH
P 111433Z MAY 09
FM AMEMBASSY RIYADH
TO RUEHC/SECSTATE WASHDC PRIORITY 0773
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RUEKDIA/DIA WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 RIYADH 000653 
 
SIPDIS 
 
DEPT FOR NEA/ARP, INR/NESA, INR/EC, EEB/IFD/OMA 
 
E.O. 12958: DECL: 05/10/2019 
TAGS: ECON EINV PREL ETRD GCC SA
SUBJECT: SAG FLEXES MUSCLES TO ENSURE GCC CENTRAL BANK IN 
RIYADH 
 
Classified By: Acting DCM Sandra Muench for reasons 1.4 (b) and (d) 
 
¶1. (U) Key points: 
 
-- (U) The GCC announced on May 5 that the GCC monetary 
council, a precursor to a GCC central bank, would be located 
in Riyadh and would start operating by the end of 2009. 
 
-- (SBU) Embassy contacts disagree as to the reason for 
locating the council in Riyadh as opposed to the UAE, with 
some citing Saudi egos and others identifying Saudi Arabia's 
recent economic performance relative to its neighbors. 
 
-- (C) A senior GCC Secretariat official responsible for 
external economic relations believes a currency could be in 
circulation by the end of 2012. 
 
¶2. (SBU) Comment:  Although the establishment of the monetary 
council is a clear indication the GCC members are still 
politically committed to a common currency, there are still 
significant obstacles to overcome.  Among these are decisions 
on whether the GCC central bank or the members' central banks 
will have control of foreign reserves, what the common 
currency's relationship with the U.S. dollar will be (four of 
five initial members of the future monetary union currently 
have their currencies pegged to the dollar), and what will 
the timetable be for adoption of the common currency.  Given 
the decisions that remain to be worked out, it is unlikely a 
currency will be in place before the end of 2012.  End 
comment. 
 
¶3. (U) Leaders of the Gulf Cooperation Council (GCC) met in 
Riyadh on May 5 and selected Riyadh as the location of the 
GCC monetary council, a precursor to the group's central 
bank.  Various Emirati media publications reported that the 
UAE had "voiced reservations" over the decision to locate the 
Council in Riyadh, asserting that the lack of GCC 
institutions in the UAE and the UAE's early offer to host the 
bank gave them the "right" to have the bank in their country. 
 
¶4. (C) In a May 6 conversation with EconCouns, Saudi British 
Bank's chief economist, Dr. John Sfakianakis, said the 
decision to locate the monetary council in Saudi Arabia had 
been reached six weeks ago and that the meeting held the day 
before was just the public unveiling of this decision.  He 
also relayed that many had argued in favor of having the 
institution located in the UAE but placing a prominent Saudi 
in charge (such as recently retired central bank governor 
Hamid Al-Sayari), but that "egos interfered" (presumably 
Saudi egos).  Sfakianakis said he sees monetary integration 
proceeding slowly, with the countries in the region taking 
the intermediate step of transitioning from a dollar peg to a 
currency basket before adopting a common currency. 
 
¶5. (C) EconOff met with Dr. Abdulaziz Al-Uwaisheg, Director 
General of External Economic Relations at the GCC 
Secretariat, on May 10 to discuss the future GCC central 
bank.  Uwaisheg clarified that the role of the monetary 
council will be to lay the groundwork for the future central 
bank, and will coordinate monetary policy between the GCC 
members, but will not have the authority to set policy 
itself.  He expects the council to finish its work within 2 - 
3 years and then evolve into the bank.  When asked why the 
GCC leaders decided to locate the council in Riyadh, Uwaisheg 
said it was a combination of the size of Saudi Arabia's 
economy relative to the other GCC members (in 2007 Saudi 
Arabia accounted for 47 percent of the GCC's combined GDP) 
and Riyadh's reputation as "conservative and boring" when it 
comes to money management.  He said that Riyadh's lobbying 
efforts were augmented by the perception that Saudi Arabia is 
doing a better job weathering the current economic crisis 
than some of its neighbors. 
 
¶6. (C) Uwaisheg also discussed the GCC's movement towards a 
common currency, saying that though the current agreement 
requires the currency to be in place by the end of 2010, the 
monetary council is likely to ask the GCC leadership for an 
extension.  He said he believes an accounting unit with 
irrevocably fixed exchange rates to the various GCC members' 
currencies could be in place by early 2011 with the currency 
entering into circulation by mid to late 2012 (originally the 
GCC intended to skip the accounting unit phase and jump 
straight to a circulating currency but has recently realized 
that is not feasible).  According to Uwaisheg, the GCC has 
already met with a number of firms in Europe involved in the 
production of paper currency to discuss timetables. 
 
RIYADH 00000653  002 OF 002 
 
 
RUNDELL