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Gulf central bank could end inflation and currency woes
Common currency expected to be used as a hedge against oil shocks.
- By Gaurav Ghose, Financial Features Editor
- Published: 16:36 September 15, 2008
Dubai: The establishment of a Gulf central bank would not only address the problem of inflation, but also its unified Gulf currency is expected to be a major global currency, according to a report released by the Dubai International Financial Centre (DIFC) Authority, on Monday.
"We believe that a Gulf currency will be a major world currency alongside the dollar, the euro and the Japanese yen and it can be one of the international reserves for other countries," said Nasser Saidi, chief economist, DIFC Authority and one of the authors of the report. "So it could be a reserve currency for central banks and global asset managers," as both a safe haven and a hedge against oil price shocks and inflation.
The report The Institutional Framework of the Gulf Central Bank, recommends a Gulf central bank with its own staff and administration backed by strong political backing that will give it credibility in international markets.
Emphasising the importance of a strong bank and a unified currency, Saidi said financial markets will be reassured by a currency whose value is guaranteed by an institution committed to reining in inflation.
"If you have a single currency, then the prices of all equities and bonds in all the GCC markets will be quoted in that single currency and if that currency has a low inflation rate, that would give it more confidence in the financial market," he said.
The Gulf central bank is a key requirement to meeting the January 2010 deadline for the implementation of a GCC common currency.
While the financial markets are still sceptical about the common currency being implemented by the deadline, the report says it is still feasible and "largely a matter of political will".
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