Regional Initiative in the Gulf Arab States: The Search for a Common Currency

Syed Abul, Basher (2015): Regional Initiative in the Gulf Arab States: The Search for a Common Currency. Published in: International Journal of Islamic and Middle Eastern Finance and Management , Vol. 8, No. 2 (2015): pp. 185-202.

Abstract

Purpose – This paper makes two main additions to the literature on GCC (Gulf Cooperation Council) monetary union. First, it emphasizes that the creation of a fiscal union is necessary for the GCC monetary union to succeed. Second, it proposes some alternatives to pegging to the dollar, which would allow the GCC countries to absorb large swings in global commodity prices (oil, food) in the short to medium run.

Design/methodology/approach – This paper uses exploratory research to shed light on the feasibility of a common currency for the proposed GCC Monetary Union.

Findings – Given the challenges associated with creating a GCC fiscal union as a requirement for a successful monetary union, the GCC countries could easily set up an “anti-crisis fund” to partially protect themselves from the economic and social costs of unforeseen crises. A BBC (basket, band, and crawl) currency system, at an individual country level or a regional level, would allow the GCC countries to cope with not just large swings in global commodity prices, but also as an effective instrument for the governments to promote their economic diversification.

Practical implications – This paper offers a template for the GCC central banks to consider the BBC currency system as an alternative to their existing dollar peg regime.

Originality/value – This is the first paper that attempts to provide a formal argument in support of the BBC currency system as an alternative exchange rate arrangement for the GCC countries.

Paper type – Conceptual paper.

• Item Type: MPRA Paper
• Language: English
• Keywords: Fixed exchange rate; Currency basket; Fiscal union; Monetary union; Gulf Cooperation Council.
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance

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