Currency Union and Exchange Rate Issues

Currency Union and Exchange Rate Issues

Lessons for the Gulf States

New Horizons in Money and Finance series

Edited by Ronald MacDonald and Abdulrazak Al Faris

This book – written by leading academics and practitioners in the field – brings together cutting edge research on exchange rate regime and monetary union issues. There is a particular focus on the implications for member states of the Gulf Cooperation Council which is itself working towards forming a monetary union for the Gulf States.

Chapter 2: Currency Union in the GCC Countries: History, Prerequisites and Implications

Abdulrazak Al Faris

Subjects: economics and finance, financial economics and regulation, international economics, social policy and sociology, migration


Abdulrazak Al Faris INTRODUCTION From a global perspective, the GCC countries do not exhibit extraordinary qualities from several standpoints: they have the geographical size of the eurozone, albeit with a combined GDP equivalent to a medium-size European country like the Netherlands. The region’s total population amounts to less than 0.6 percent of the total world population, and its export represents 1.5 percent of global exports. However, looking beyond the surface the GCC’s significance is demonstrated in a variety of other factors: its members control more than 40 percent of world-proven oil reserves, around 23 percent of global gas reserves and nearly 38 percent of global official financial reserves. Moreover, the region’s impressive development in infrastructure, financial services and communications allowed it to benefit from the process of globalization, be better integrated in international markets and take a leading role in several development spheres in the Middle East and North Africa (MENA) region. The Gulf States, due to massive investment in education, health, housing and other social services, rank high in many international indicators such as Human Development Index (HDI), competitiveness, economic freedom and transparency. Given all this, if realized, the Gulf single currency would be the second largest common currency after the euro, and its constituent, the Gulf Monetary Union, would be the second most important supranational monetary union in terms of GDP after the euro area. This chapter provides a broad survey of the main issues in the GCC currency union experience. It starts with a background on the...

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