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GCC monetary union: is it viable?
Politics and public disagreements have delayed the introduction of the monetary union. With the financial crisis continuing to destroy economies worldwide, can the GCC pull off a monetary union?
July 15, 2009 3:33 by Jonathan Howell-Jones
On May 20, the UAE pulled out of the proposed monetary union (single currency) for the GCC. The news came a few days after WAM reported that UAE Vice President Sheikh Mohammed had expressed “reservation” about the decision to headquarter the central bank to manage this currency in Riyadh, noting that, from the outset, the UAE was intent on basing the operation within its borders.
Saudi Arabia’s King Abdullah responded almost a week later in an interview with Kuwait Arabic newspaper Al Seyyasah in a conciliatory manner. Considering the politeness that came with the UAE’s withdrawal, the king believes this step is not intractable. “The atmosphere for reviewing the monetary union agreement is open and the UAE has an alert leadership … We do not doubt they are keen to maintain a strong Gulf (Cooperation) Council.”
“The coming review before the implementation would resolve what had been disputed,” he said.
The decision to pull out reflects the fact that centralizing and unifying elements of the GCC will be fraught with such problems in the future. Much of this stems from creating an equitable framework for each nation, a hard-to-balance task. The single currency is seen by observers and politicians as a means of creating greater interdependence among the GCC states – the basis for improving political unity.
It also mirrors the formation of the EU single currency, when Germany and France wished to foment greater unity and mutual reliance. Nevertheless, while monetary union is an economic objective, it is also an optional tick box on the political checklist of goals designed to form greater unity within the GCC, says Marios Maratheftis, chief economist of Standard Chartered Middle East. “No matter what happens to the common currency, we’re still part of the GCC and we’re willing to cooperate with our GCC neighbors – and that’s the right way to go,” he says. “Political cooperation is essential, and monetary union is not necessary to achieve that.”
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