The Path Toward a Unified Gulf Currency

Over the past 40 years, Gulf Cooperation Council countries have made important progress on many economic fronts, such as the removal of taxes and duties on national products, the harmonization of tariffs, reciprocal work permit agreements, and electrical and railway connectivity. However, what has still not been achieved is the single most important endeavor: adopting a unified currency for all Gulf states. Of course, currency unification is one of the most difficult stages of economic unity. In the European Union, the single currency was adopted only after years and years of groundwork. Indeed, adopting a single currency is the most complex aspect of cooperation due to the complexity of monetary policies and their significant effects on the overall financial conditions of each member state. Like with any unified currency, the process of issuing the Gulf currency faces several obstacles, although it is the currency that has the most chances for success thanks to the existing economic infrastructure shared between its potential member states (with the exception of Kuwait, whose currency is pegged to the US dollar). The most pressing issue is the need to set up a Gulf Central Bank that would enjoy full autonomy and would be protected from any political interference of a single member state. It would have a chairman and board of directors that would be professionally elected and have full power to draw up the bank’s monetary policies in line with its vision for the Gulf’s economy. There are no de facto monetary policies in the GCC states at the present time since all of them follow the monetary policies of the US dollar by virtue of their association with it; the unified currency, if agreed upon, must initially be pegged to the dollar, as well. This is especially true since, after 40 years of taking orders from the US Federal Reserve, GCC states will need to develop greater competency and expertise in devising their own monetary policy. After launching the single currency and ensuring its stability, GCC states would have to undertake extensive legislative groundwork in an effort to ultimately break the peg from the US dollar. This will be done while ensuring the complete sovereignty of the Gulf Central Bank. None of these steps are easy, but they may very well prove rewarding for the Gulf region. –Mohammed Al-Asoumi (translated by Asaf Zilberfarb)