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How to form an Arab single currency?

More co-operation an political will required for Arab common currency

Gulf News

Over the past 50 years, the Arabs failed to achieve the desired economic progress due to inactive economic cooperation, thus leading to accumulation of many ineffective decisions and recommendations, which were later placed on the shelves and cabinets of Arabic League’s offices.

Lately, the Arab League, however, decided to study the possibility of setting up an Arab single currency, based on a proposal submitted by the Arab Importers and Exporters Union.

The question arises here on which basis the Arab League has adopted this proposal, which sounds an emotional and inapplicable one rather than an approach based on sound, objective and scientific grounds through which the Arabs can build on in their quest to launch such a single currency.

The Arab joint action, including the economic sphere, was characterised by the dominance of emotional aspects far away from reality. As a result of such a sentimental attitude, the decisions were put aside and forgotten, simply because they are inapplicable as they lack the availability of conditions necessary for their implementation. As for the common Arabic market, which is less complex than the single currency, the Arabs have yet to implement a single term of its agreement which was approved almost 50 years ago, in 1964.

Regarding the Greater Arab Free Trade (Gafta), which was launched 10 years ago, this agreement constitutes a humble beginning, which can be easily implemented through scrapping customs duties on Arab goods produced domestically. However, it has yet to bear its fruits.

If this is the case, how come the Arab League has adopted the initiative of the Arab Exporters and Importers Union, and on which grounds? And, does it sound logical?

This is simply because several preparatory measures and procedures are necessary to be discussed and made before the single currency can be set up by any economic group. First, these preparations include implementation of common agreements, such as the free trade area, customs union, common market and unification of regulations and financial legislation.

Second, the single currency requires a convergence of fiscal and monetary conditions, particularly the strength of government budgets as well as deficit and public debt ratios, and convergence of exchange rates for national currencies, credit policies, interest rates and inflation rates.

This in addition to complicated financial and monetary issues that vary flagrantly and substantially between Arab countries and pose obstacles that hinder any approach towards the launch of the proposed Arab single currency in the foreseeable future due to the absence of sound and subjective principles.

It is vital here to refer to these huge gaps between Arab countries, GDP per capita, for example, is the highest in the GCC, with the average per capita surpassing $40,000, while it is only $2,000 in Yemen, and less than $1000 in Somalia, not to mention other inequalities.

Also, at a time when Gulf budgets achieve huge surpluses, the budgets of most other Arabic countries suffer from chronic deficits and rely on foreign subsidies.

If we take the GCC experience as an example of collective cooperation in the region, the issue of forming a single currency is still in need of extra and intensified efforts. This happens despite the progress made in the economic sphere, including the setting up of a free trade area and the Unified Customs Union and Common Market.

The setting up of the GCC single currency is slowly progressing although it has been 30 years since the establishment of the Gulf Cooperation Council and despite the harmony and convergence between the Gulf economies and development indicators, as well as similar financial and monetary systems which have taken a unified collective character lately

In principle, there are prospects for Arab economic cooperation, yet it must be based on objective and scientific grounds that respect surrounding circumstances, inequalities and economic abilities of Arab countries.

This type of cooperation must begins with the setting up of a free trade area under which local products shall be exempted from customs duties, before moving to a more advanced stage.

So, the right beginning is to set up the free trade area, and not to move to a higher step unless the first step is done completely. This is the only way to achieve ambitious Arab plans and goals.

Since the Arab League has a lot of experts, it must make the most of the Gulf experience to develop more logical forms of cooperation based on reality and away from sentiments and unfulfilled wishes — due to immaturity and improper conditions required for making such initiatives a success. And, this is the only approach that can lead to successful initiatives — due to credibility and response by Arab countries.

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