Central Bank of Gulf Cooperation Council - Assignment Example

Central Bank of GCC “Gulf Cooperation Council Executive Summary The prime intent of this assignment is to analyze the Central Bank of Gulf Cooperation Council (GCC) based on which its various important objectives as well as functions can be ascertained that can aid in developing economy by a considerable extent. Thus, various significant aspects including its structure, similarities or differences from the European Central Bank and arguments along with counter-arguments against GCC Central Bank will be duly considered for discussion in this assignment. In relation to the above context, it can be apparently observed that the framing of effective monetary as well as fiscal policies will be one of the prime aspects to be taken into concern while designing the structure of GCC Central Bank. From the conduct of various studies, it can be found that the objectives and the functions that hold by GCC Central Bank will significantly lead the economies of the respective Gulf nations to attain immense growth. 2. Introduction The Central Banks belonging to varied nations have been playing a decisive part in the developmental process of economies for numerous years. These sorts of financial intermediaries aid in progressing the economies of respective nations in terms of recognizing adequate monetary flow. It is worth mentioning that Central Banks not only look upon stabilizing the monetary policies, but also focuses on maintaining internal monitory stability by controlling the inflationary pressure. This inflationary pressure is mainly created owing to the persistence of inelasticity in adequate monetary transactions (Bank for International Settlement, 2009). The Gulf Cooperation Council (GCC) is principally viewed to be a political and economic association, which mainly regulates the financial policies of six Gulf countries of Middle East. From a historical perspective, it will be vital to mention that GCC was mainly established in the year 1981in Riyadh, Saudia Arabia. It operates in six Gulf countries namely Saudia Arabia, Kuwait, United Arab Erminates, Qatar, Bahrain and Oman. Specially mentioning, the monetary policies and the economic growth of these Gulf countries are not regulated by the Central Bank (Sturm et al., 2008). With this concern, the assignment intends to conduct a comprehensive analysis of GCC Central Bank with considering varied significant aspects. These aspects comprise recommending the structure of GCC Central Bank, identifying similarities or differences with that of the European Central Bank and assessing the imperative functions as well as objectives of the same. 3. Discussion 3.1 Structure of the Central Bank for GCC While suggesting the structure of the Central Bank for GCC, it will be vital to mention that the economic structural facets of all the GCC nations are not similar in nature. In general, one of the prime roles of the Central Banks is to make wider developments in economies by regulating financial activities in the form of issuing several policies. In order to establish better and efficient financial or monetary policies in the GCC countries, the GCC Central Bank needs to be quite well structured. In this similar context, from the perspective of structuring Gulf Central Bank, it can be suggested that the bank need to take the accountability of designing effective monetary and credit policies. Moreover, it will be quite essential for the Gulf Central Bank to formulate and strengthen the regimes over the monetary policies (Bindseil et al., 2004). In relation to determine the structure of the suggested Central Bank for GCC, it will be vital to mention that the bank should formulate such monetary policies that deal with the several policy instruments for inducing the flow of money in an economy. To establish successful monetary policies in the GCC countries, the suggested structure of Central Bank will mainly focus on several factors including Operating Target and Monetary Policy Instrument. These factors will certainly maximize fiscal positions, capital flows, inflation and exchange rates (Gulf Cooperation Council, 2013). With regards to determine the structure of the suggested Central Bank for GCC, it is to be inferred that the Central Bank need to pay utmost focus on liquidity creation, as the Gulf nations earn more from foreign export businesses. In order to develop a stable economy, the suggested GCC Central Bank will tend to regulate the entire banking system and develop an efficient banking system, which might prove to be helpful in developing the economy of the respective GCC nations at large. The structure of the suggested Central Bank of GCC will mainly engage in controlling the volume of currency, which will support a business to fulfill its diverse needs. It will also settle down the payment system between several commercial banks. The authority of the Central Banks of distinct GCC countries need to be very strict and impose stern regulations over the banking and monetary system towards the attainment of better economic growth (Gulf Cooperation Council, 2013). 3.2 Similarities or Dissimilarities between Central Bank of GCC and European Central Bank It can be ascertained that the European countries are much economically strong from the other developing countries due to increased level of GDP growth in such nations and the prevalence of effective monetary policies. After acquiring a brief idea about the structure of the suggested GCC Central Bank, certain differences can be apparently observed to prevail between Central Bank of GCC and European Central Bank. In this similar context, one of such differences can be ascertained as the dissimilar monetary policies frame by these two distinct banks. This can be justified with reference to the fact that the European Central Bank remains much strict over its varied monetary policies as compared to GCC Central Bank. The European Central Bank is principally viewed to follow the legislations that are related to the Euro system. Moreover, the European Central Bank has been playing a decision making center for the development of the Euro system. In contrast, it can be found that the Central Bank of GCC do not remain much efficient in maintaining the legislations that are related to the business of exports as well as imports. Notably, one of the main income sources of the Gulf countries is viewed to be oil export business, based on which, the GCC Central Bank mainly establish monetary and liquidity rules along with regulations by considering this factor (European Central Bank, 2004). In terms of industrial growth, the European countries possess several diversification structural nodes as compared to the Gulf countries. Thus, based on these aspects, it can be affirmed that the banking regulation and the structure of European Central Bank is far different from the Central Bank of GCC. By taking into concern the fact that the GCC countries have the focal point only on crude oil export business, thus the banking regulations of the GCC Central Banks mainly reveal in limited areas. In contrast, as the European countries are having diversification in several business market segments, thus the monetary and fiscal policies frame by the European Central Bank promote diversification during the application of the same. In terms of differences, it can be apparently observed that the European Central Bank possess greater amount of foreign currency reserves in the Eurozone for dealing with foreign businesses. Moreover, the structure of this sort of bank is viewed to be quite organized as compared to Central Bank of GCC (European Union, 2014). 3.3 Arguments For and Against the GCC Central Bank From the above discussion, it can be comprehended that the structure of the suggested Central Bank of GCC may impose positive impact on the development of economies of varied GCC. It is projected that the application of effective monetary policies, which is aligned within the structure of GCC Central Bank, will certainly enable in developing the economic conditions of such nations in the form of raising fund flow and other related financial indicators. After the imposition of such policies mentioned above, it is projected that the Central Bank of GCC will certainly contribute in promoting foreign investments in the respective GCC nations (Thomson Reuters, 2014). Apart from favoring the Central Bank of GCC in uplifting the financial conditions of the respective Gulf nations, certain arguments have also been made regarding the imposition of adverse impacts on the economies of such nations. This can be justified with reference to the fact that as the GCC countries do not possess any sort of strict regulation, there certainly lays the probability of rising complexities in the overall operational procedure of the banking sector (Thomson Reuters, 2014). 3.4 Important Objectives and Functions for GCC Central Bank It has been quite apparent that the Central Banks possess certain important objectives and functions that lead towards the formation of a better growing economy. In this similar context, one of the important objectives of the Central Bank of GCC is identified to be designing effective monetary as well as credit policies. Apart from this, the other important aim of this bank is to find out various ways based on which the inflow of funds can be stabilized in an effective manner. Most importantly, the GCC Central Bank also holds the objective of protecting the depositors as well as the customers who tend to invest in the financial sector (QCB, 2008). Notably, one of the main functions of Central Bank of GCC can be ascertained as acting depository agencies for the respective governments of diverse Gulf nations. Another prime function of GCC Central Bank is noted to regulate all the commercial banks, finance and leasing companies to conduct their respective activities by taking into concern the interests of the clients (Obay & Samet, 2011). 4. Conclusion By reviewing the study, it is to be affirmed that the GCC countries are facing several problems due to having shortages in utilizing available and appropriate resources. Currently, it can be apparently observed that the distinct GCC countries are facing diversification in industrial growth. This can be justified with reference to the fact that the promotion of diversification in the industrial growth has not been regulated properly by the GCC nations. In this regard, for eliminating several loopholes persisting within the financial aspects of the GCC nations, the important objectives along with functions of GCC Central Bank will be quite noteworthy to consider. After evaluating the above discussed aspects, it can be concluded that the Central Bank of GCC would play a decisive part in developing a stable economy amid the diverse GCC nations. Apart from this, the Central Bank of GCC also needs to frame certain relevant, appropriate and effective monetary as well as fiscal policies in order to address along with mitigate any sort of risk, which erupts while assessing the financial conditions of the different Gulf nations. Thus, the structure, objectives and the functions possessing by GCC Central Bank will eventually aid in paying the way of immense sustainable development of the economies of the GCC nations by a considerable extent. 5. References European Union. (2014). European central bank. Retrieved from http://europa.eu/about-eu/institutions-bodies/ecb/index_en.htm Gulf Cooperation Council. (2013). Economic prospects and policy challenges for the GCC countries. Annual Meeting of Ministers of Finance and Central Bank Governors, 1-27. Obay, L. A., & Samet, A. (2011). Structure, conduct, and performance: case of GCC banks. Abu Dhabi University, 1-4. QCB. (2008). Press release: monetary council second board meeting. Retrieved from http://www.qcb.gov.qa/english/news/pages/gcccmeeting2.aspx Sturm, M., Strasky, J., Adolf, P., Peschel, D. (2008). The Gulf Cooperation Council Countries - Economic Structures, Recent Developments and Role in the Global Economy. Occasional Paper Series, 1-79. Thomson Reuters. (2014). State of the GCC banking system. Retrieved from http://www.ifre.com/state-of-the-gcc-banking-system/610387.fullarticle Read More