RobbyG wrote:uaekid wrote:robbyg, what do you think will be the effect of GCC union economically ? they are about to launch the GCC currency and central bank in KSA.
Well, one of the good things of this GCC economic block of oil exporters will be a strong currency when oil prices get back around $80 dollars a barrel. It will be the worlds second currency union effort after the Euro, so The GCC will keep an eye out on how Europe is responding to the financial crisis before introducing it. (ps: the Euro is the model for the single GCC currency). At this point a lot of Euro nations have difficulty following the monetary policies of the ECB (deficit greater than threshold as a percentage of GDP) and those problems are visible in the GCC region also. There is a convergance of economic performance going on.
For example:
Since the crisis began, GCC nations have followed their own individual interest rate policies. The focus on self sustainability is larger than the combined effort of a single currency interest rate policy. So in times of crisis they prefer their own way, so it appears. The GCC is not entirely ready for intrucing the single currency in 2010. It will probably be a few years later when political will has increased.
Saoudi Arabia has lowered its interest rates for greater interbank lending, while Qatar has inflation worries and left interest rates unchanged. They seek other efforts of domestic financial banking support. These different approaches are not possible under a single currency union. For now, its merely identifying the problems that Europe faces and learn from the process in the coming years. Eventually the GCC currency will benefit from a single currency as it becomes easier for foreign investors to put money into the GCC region.
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Gulf States will Stick to 2010 Deadline for Currency Union
(Bloomberg)
8 May 2009
DUBAI — Five Gulf Arab countries seeking to adopt a euro-style single currency are sticking to next year’s deadline for monetary union, Qatar’s central bank governor said.
“We will still continue with 2010 and we’ll be working hard to achieve our goals and objectives,” Governor Abdullah Saud Al Thani said in an interview in Singapore today. Gulf Cooperation Council members in March abandoned the 2010 target and GCC Secretary-General Abdul Rahman Al Attiyah yesterday said a new deadline hadn’t
been set.
Qatar, one of the Gulf states that was vying to host a united Gulf central bank, was also happy with the selection of the Saudi Arabian capital of Riyadh for the institution’s headquarters,
Al Thani said. “We will be working hard to accomplish the GCC union,” the governor said.
Five countries planning to launch a single currency decided on May 5 to locate the monetary council, what will later become the unified central bank, in Saudi Arabia, the Arab world’s largest economy. The United Arab Emirates, which had also been competing to host the bank, said they expressed ‘reservation’ at the selection, according to state-run WAM news agency.
A GCC official said in March that the 2010 deadline for reaching monetary union would have to be extended as too many technical issues remained.
The drive to create one currency and drop pegs to the dollar has waned in recent months as Gulf central banks increasingly acted independently of each other to solve liquidity problems caused by the global financial crisis. Little progress had been made since September when the central banks approved the agreement for
monetary union. The original 2001 agreement to set up the new currency included Saudi Arabia, the UAE, Qatar, Oman, Bahrain and Kuwait. Oman pulled out in 2007.
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