Single currency to increase clout |
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Monday, Dec 29, 2008
Gulf News
Dubai: A single currency backed by a common econ-omic agenda and a unified monetary policy could make the Gulf a strong regional economic bloc, say economists and financial experts.
"The single currency is a huge opportunity for the Gulf region to make its economic clout felt in the international arena. Creation of a strong currency supported by nearly 50 per cent of world's oil wealth will prove to be a major stabilising factor for the regional economies," said Dr Nasser Saidi, Chief Econ-omist of Dubai International Financial Centre.
Besides attracting foreign investments, analysts say, a strong currency could become a key factor in preserving the region's financial wealth and help recycle oil wealth within the region.
Analysts believe the current global economic environment presents an ideal opportunity for the creation of a strong common currency that could emerge stronger than many international currencies such as the dollar, euro, yen and sterling. "The Gulf common currency supported by the region's resource wealth could become a major reserve currency attracting global reserves into the region. It could also help regional financial centres emerge as global financial centers competing with others such as New York and London," said Dr Saidi.
Economists and currency experts believe the pegged currency regimes in the region and the direct link to the US monetary policy was one of the main reasons for the recent economic volatility in the region.
Once the currency union is launched, the immediate priority of the Gulf Central Bank will be to launch a flexible monetary policy that ensures exchange rate stability.
"The peg is a major constraint to monetary policy independence of GCCGCC
countries. It limited the options of regional central banks in addressing the impact of inflation and global financial crisis on regional economies," said Dr Fabio Scacciavillani, an economist with DIFCDIFC
.
The dollar's wild swings against major currencies last year prompted by measures to combat the financial crisis and recession in the US proved to be detrimental to the interests of the Gulf. While the repeated interest rate cuts and credit expansion resulted in asset price inflation in the Gulf countries, it also contributed to highly volatile exchange rates against other international currencies.
"A strong link to the dollar, a currency backed by unstable current account position and expanding fiscal liabilities is likely to exacerbate instability in small open economies of the Gulf," DIFCDIFC
said in a recent report.
DIFCDIFC
experts have proposed delinking of the Gulf currency from dollar and pegging it against a transparent and flexible currency basket that can accommodate changes from time to time. To better reflect regional trade patterns, DIFCDIFC
has recently proposed a currency basket with 45 per cent weightage to the US dollar, followed by 35 per cent for the euro, 20 per cent for the yen and 5 per cent for the sterling, respectively.
Although Oman has officially opted out of the Gulf Monetary Union, other Gulf states remain committed to the 2010 deadline. The final draft of the region's monetary union agreement is due to be discussed by Gulf Heads of States tomorrow in Muscat.
© Gulf News 2008. All rights reserved.
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