Business | Economy
Basket of currencies proposed
Economists at Dubai International Financial Centre on Wednesday proposed an anchor basket for the Gulf common currency to be introduced from January 1, 2010.
- By Babu Das Augustine, Banking Editor
- Published: 23:27 December 17, 2008
- Image Credit: Graphic: Guillermo Munro/Gulf News
Dubai: Economists at Dubai International Financial Centre on Wednesday proposed an anchor basket for the Gulf common currency to be introduced from January 1, 2010.
The recommendation of the new anchor basket comes ahead of the meeting of the Gulf heads of states on December 29 and 30 in Muscat, Oman.
The proposed basket would comprise and give a 45 per cent weightage to the US dollar, followed by the euro at 35 per cent, the yen at 20 per cent and sterling at 5 per cent.
"We see that managing exchange rates against a basket of currencies rather than one currency would allow adequate flexibility to tailor monetary policy that can address both domestic economic issues and withstand external currencies," said Dr Nasser Al Saidi, Chief Economist of DIFC.
As a policy recommendation, DIFC economists have proposed maintaining the peg of the Gulf currencies to the dollar until the adoption of the common currency, which they have tentatively named the "Khaliji".
The latest round of negotiations held among the GCC authorities in September 2008 paved the way for an agreement on common currency, which awaits the endorsement of the Gulf Heads of State summit at the end of this month.
Once the currency union is launched, the immediate priority of the Gulf Central Banks will be to launch a flexible monetary policy that ensures exchange rate stability.
"The peg is a major constraint to monetary policy independence of GCC countries. It limited the options of central banks in addressing the global financial crisis," said Dr Fabio Scacciavillani, an economist at DIFC.
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 states. 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 currency of the US, a country with an unstable current account position and expanding fiscal liabilities is likely to exacerbate instability in small open economies of the Gulf," said Dr Al Saidi.
Will it be khaliji?
The Gulf common currency is just 12 months away. Economists at the Dubai International Financial Centre have tentatively named the new common currency the "Khaliji". Although the baptism is not yet officially approved, DIFC economists are hopeful that the proposed name will find favour with the decision makers.
"While the name does not associate or sound like any of the existing currencies of the Gulf States, it does reflect the attribute of the region to which all the states belong," said Dr Nasser Al Saidi, chief economist of the Dubai International Financial Centre.
What should be the design on a 'Khaleeji' currency? How will a unified currency affect the region's economy? Will it help the region overcome the global economic crisis? Send us your comments below and illustrations at letter2editor@gulfnews.com
Your comments
I am really happy to hear about the common currency. It is a good idea. The name is also good.
Shabeer Syed
Sharjah,UAE
Posted: December 18, 2008, 12:48
More from Economy
More from Business
Business Editor's choice
-
DFSA chief to step down in September
Executive has been at post since 2008
-
Geepas idea blossomed in Dubai
The journey led from a small shop in Bahrain to a $1.27b company in the UAE
