Gulf Arab countries endorsed a monetary union agreement on Tuesday despite the absence of major player the United Arab Emirates and fellow oil producer Oman and left options open for pegging their future single currency.
Rulers from the world's top oil exporting region gathered in Kuwait to push forward the much-delayed project, whose viability was put in question by the pullout in May of the UAE, the second largest Arab economy after Saudi Arabia.
The central bankers from four states in the union -- Saudi Arabia, Kuwait, Qatar and Bahrain -- will now set a timetable for creation of a joint central bank, Kuwait's finance minister said, but the summit revealed no details on what authority its forerunner would have.
Mustapha al-Shamali expressed hope the UAE and Oman would rejoin the planned union in the near future, but did not give more details about his country's drive to secure their return during its 2010 presidency of the Gulf Cooperation Council.
Kuwait said on Monday no specific deadline has been set for the launch of the planned single currency, which officials have said could take up to 10 years.
The UAE withdrew from the project in protest at the decision to site the joint monetary council, which will prepare the launch of the common central bank, in the Saudi capital Riyadh.
Oman, a non-OPEC oil producer, abandoned the project in 2006, saying it could not meet the original 2010 deadline.
Analysts did not expect the two countries to come back at this week's summit as the UAE, embarrassed by the problems of its debt-laden emirate of Dubai, was still bitter about the central bank. Oman has said its decision was final.
However, the UAE's return at a later stage was not completely ruled out if the Saudis offer enough concessions.
They want to leave the door open (for the UAE and Oman) to come back in, said David Butter, regional director for the Middle East and North Africa at the Economist Intelligence Unit.
Ultimately a monetary union with all six members in will be a stronger institution than one with only four. But I don't detect any real push on either the UAE side or the Saudi side to bring the UAE back in the short term anyway, he said.
Striking a power balance in the union remains a challenge as some smaller Gulf states resist the dominance of Saudi Arabia, the world's biggest oil exporter.
The Gulf policymakers decided that central bank governors of the four union members will have equal voting rights in the monetary council, an official from the six-nation GCC said.
On major issues it (monetary council decisions) will be unanimous, said Nasser al-Kaud, deputy assistant GCC secretary general for economic affairs.
It will be equal weighting and of course the central bank might be different, he told reporters on the sidelines of the summit.
Goldman Sachs said a Gulf currency union may still be a long way ahead.
Obviously it is encouraging to see four member states agree to ratify the union. But the exact content of the agreement is unclear and taking into view the technical, legal and political challenges ahead we tend to interpret today's developments as only a symbolic step toward the establishment of a common ... currency area, it said in a note.
The joint monetary council will meet in two months, Kaud said, but its authority and further steps toward adopting the single currency remain unanswered after the Kuwait summit.
We also need to hear about the authority of the monetary council and the issues the monetary council will be dealing with, said John Sfakianakis, chief economist at Banque Saudi Fransi-Credit Agricole Group in Riyadh.
A deal on the new currency regime remains distant despite a debate on whether it would be better to peg to the dollar, as most Gulf states do, or pick Kuwait's currency basket model due to the dollar's weakness, which revives fears of high inflation. It depends on the central bank governors and technical studies ... options are open, Shamali told reporters during the summit.
(Additional reporting by Eman Goma and Rania Oteify; Writing by Martin Dokoupil; Editing by Inal Ersan, Ruth Pitchford and James Dalgleish)