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Single GCC currency
Arab News is imagining a time when the US dollar is no longer the world’s reserve currency. In this editorial, the paper examines the euro’s troubles and what they mean for the GCC.
December 30, 2010 12:33 by shafeer
Given that the value of paper money no longer backed by gold stands or falls by the confidence people have in it, it was inevitable that the euro, despite having survived market cynicism at its introduction, would come under pressure at some point. That point indeed is now.
The lessons here for a GCC currency are clear. When such a single such currency does become a reality, its existence should first and foremost be inevitable in a purely economic sense, rather than a political wish. It should reflect a level of economic and financial integration among Gulf states that already exists, not some ambition that has yet to be fulfilled. For the moment, the troubles that have affected the euro will almost certainly leave many in the GCC unenthusiastic about replacing the existing six currencies with a single one.
That said, there is a sense in which, to a certain extent, the GCC already has a single currency. Most GCC currencies are already pegged to the US dollar, which means that they experienced unified movements in value. Ten Saudi riyals equals one Bahraini dinar equals 10 Qatari riyals equals ten UAE dirhams — more or less. It has been like that for years. For sure it can be argued that the US Fed thus enjoys undue influence over GCC finances. However, given that the GCC’s main exports, hydrocarbons, are priced in dollars, this is no bad thing. Were any currency to de-peg from the dollar, they would soar in value overnight and income (arriving in dollars) would plummet. So, in the meantime, our finance ministries should be learning some valuable lessons for the time when the US dollar is no longer the world’s reserve currency and the GCC possesses its own notes.
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