Since its establishment in 1981, the Gulf Cooperation Council (GCC) has made its primary priority to be the creation of a monetary union, and subsequently, a single currency across the region. The Gulf Cooperation Council is a trade bloc of six Arab nations residing in the Persian Gulf: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. The GCC nations, excluding Oman and the UAE, have aimed for January 1, 2010 as a deadline for establishing a common currency. If the GCC is successful in establishing a single currency among their member nations, what implications could this have for them and the international business world?
The idea behind the GCC monetary union is to create one central bank, which would consolidate funds and enhance fluidity. Additionally, a single currency to be implemented across the region aims to foster greater trade and finance cooperation via steady exchange rates, and ultimately bolster the negotiating positions, and subsequently economies of the GCC member nations. So where does the global currency debate fit in?
Currently, all separate currencies being used by the four GCC nations interested in the monetary union are backed by the value of the U.S. dollar. Thus, the value of their currency is directly tied to the dollar. The current debate between GCC member nations is whether or not they should use the dollar, which has been the premier reserve currency for other central banks of trade blocs. With the decline of the dollar as a reserve currency and talk of a new global currency, the GCC nations have had to adjust their approach to the issue. Whereas the shift to a monetary union was initially proposed to be one major overhaul, these changing circumstances have led to a proposition by Kuwait that it should be done in phases—with the dollar being an initial peg for the currency, but allowing for the flexibility to adapt to changes in the global reserve currency.
Ultimately, Bahrain and other member nations of the GCC would like their currency to stand on its own and supplant their dependence on the dollar. However, changes in the value of the dollar, and questions in the global economic forum as to whether or not a new reserve currency, or a shift to one global currency, have forced the GCC to re-evaluate the situation. This could stall their realization of a monetary union, but hopefully such a delay will ultimately strengthen the efficacy of said union and currency on fostering global trade.