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Prospects for a GCC common currency / Implications of GCC currency union - Dissertation Example

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Prospects for a GCC common currency / Implications of GCC currency union

A new date has not been set, speculations setting it anywhere from two to ten years hence, which provides sufficient time and opportunity to assess the merits and the wisdom of the implementation of this course of action. One important consideration is the unit of value against which the new GCC currency will be pegged. Some speculate that the new currency will be backed by gold, consistent with the teachings in the Quran against riba (interest). It was not discounted, however, that the peg may be against the US dollar, at least initially (Daily Star, 15 Feb 2010). A proposal to use the International Monetary Fund (IMF) Special Drawing Rights (SDR), a theoretical currency used by the IMF for member states transacting with it, has been rejected. If the currency becomes a reality, four states – Saudi Arabia, Kuwait, Bahrain, and Qatar – have committed to adopting it as sole legal tender. Two other states – the UAE and Oman – have signified that they shall not join the currency union, although it may be conjectured that there is always a possibility that this may happen at a later date, when it shall be advantageous for them to do so. Host for the GCC central bank for the common currency is agreed to be situated in Riyadh, Saudi Arabia. Apparently, this is the reason the UAE has opted out of the monetary union; in 2004, the UAE was the first country to submit an application to host the GCC Central Bank, during arrangements for it to join the GCC monetary union. It is said that the UAE is not host to any GCC establishment, and its disappointment at not being chosen site of the GCC Central Bank may have led to its refusal to join the union (Gulf News, 20 May 2009). The adoption date was postponed beyond its initial deadline in 2010, due primarily to the negative repercussions of the financial crisis. There are, however, optimistic signs that the unification will push through. First is the halting of the issuance of loans to the public sector from the central banks of the four participating countries. Second is the continuing effort at converging government law and policy governing the financial sector (Emirates 24/7, 9 Mar 2010). The prospects of currency unification is of course not confined to the GCC. Precedent is the Euro, the European Union’s common currency which was adopted and has been in circulation since 2002, and administered by the independent European Central Bank situated in Frankfurt. There are, however, other proposed currency unification plans in other regions. The Amero is the theoretical legal tender of the proposed North American Currency Union (Canada, U.S. and Mexico), the Afro which is the proposed currency for the African Union, and the Asian Monetary Unit or the AMU, proposed to be adopted among ASEAN, China, Japan and South Korea. For sure, the experience of the establishment of the euro and the impending adoption of the GCC unified currency shall provide valuable input for future other efforts at currency unification. Objectives of the study The principal objective of the study is to explore the various issues and circumstances surrounding the establishment of the GCC single currency, and to arrive at an assessment as to its feasibility and the probable courses of action to ensure its success. The main objective of the study is supported by the following intermediate objectives: 1. To ...Show more


Prospects for a GCC common currency: Implications of GCC currency union 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…
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