The creation of a currency union is centred upon the formulation of a new currency that will be adopted as legal tender for all the member countries that form the union. The process is complex and delicate, since it necessitates the absorption of the national currencies into one, and with this the unification of monetary policy for the union (Krueger, Kamar & Carlotti, 2009). National economic and monetary policy are necessarily implicated, such that the individual states give up to an extent their sovereign right to policy determination insofar as they are constrained by the union.
This study examines the dynamics involved in assessing the viability of a monetary union in the Gulf Cooperation Council (GCC) region. Out of the six countries in the region, only four have opted into the prospective union, which right away underscores the difficulties in both the processes and effects involved in the union’s establishment.
1.1 Background of the research problem
In 2002, the euro was adopted as the first single currency of any unified monetary region worldwide. The euro was established by provision of the Maastricht Treaty in 1992. It is not commonly known, however, that some eleven years before this treaty, in 1981 the Gulf Cooperation Council formally articulated its objective to seek to establish a single, unified currency for the six member states in this region. Originally scheduled for adoption in 2010, the adoption date was postponed because of the destabilization caused by the intervening financial crisis and the economic recession. ...