In Theory: GCC on target for unified currency?

The study conducted by the European Union (EU) concerning the launch of a unified Gulf currency of which a preliminary copy was presented to the recent GCC summit meeting contains many significant points, trends and requirements that must be fulfilled right now to reach a single currency by 2010 as agreed in principle among the six GCC countries.

Such trends include administrative and technical standards that constituted the basis of the European monetary union and were gradually and smoothly implemented resulting ultimately in the launch of the euro, the single European currency.

Now this currency has taken its prestigious position in the world's financial and money markets during the last two years and is still making substantial gains for the EU.

Steps

Indeed, the GCC states have taken significant steps on this road by linking their currencies to the US dollar as a common denominator for all the six currencies, including the Kuwaiti dinar that used to be fixed to a basket of currencies.

However, there are still several requirements that must be met to enable the GCC member states to issue their unified currency on the mutually agreed date.

As part of the administrative aspects, agreement must be reached now to set up a Gulf central bank to be able to co-ordinate with the GCC General Secretariat monitoring the preparations and taking the necessary measures as well as agreeing on the bank's headquarters which could be based in another Gulf city other than Riyadh where the GCC General Secretariat has its offices.

For example, the headquarters of the European Central Bank (EC) is situated in Frankfurt while Brussels is considered the EU's capital and permanent base. This depends upon many factors that would facilitate the Bank's business and diverse regional and international relations.

As part of such preparations, the necessary staff and human resources must be prepared and qualified to run such a major institution considering that the Gulf union comprises oil-rich states that have influential financial potential that has considerable weight in the local and overseas financial and capital markets.

The technical standards of a financial nature, as noted by the European Union's study, basically lie in fixing the maximum deficit levels in proportion to the gross domestic product that must not exceed 3 per cent, while the current deficit varies considerably between one Gulf state and another, which calls for taking immediate steps to deal with this situation.

Attempts aimed at fixing the deficit levels in the annual budget do take a long time and require enormous resources that will be directly affected by the continuous fluctuations in the world's oil markets.

On the other hand, there is another point that is no less significant and it lies in controlling the public debt within a limit not exceeding 60 per cent of the GDP while such a limit exceeded 80 per cent in some GCC states.

Public debt accounts for more than 10 per cent or does not even exist in some other countries.
Meanwhile, solving this issue requires a relatively long time and pumping huge amounts of money to modify the conditions of certain member states to achieve the required limits before the year 2010, as the remaining five years until the end of 2009 is the minimum time required to adapt the financial and monetary conditions of the GCC member states.

Difficulty

The EU's experience has shown the difficulty of facing and meeting such requirements, given that certain EU members such as Britain and Sweden are still outside the monetary union.

In addition, last year, the monetary authorities allowed France and Germany for the first time and by way of an exception to exceed the deficit limit in the annual budget.

Should the GCC states be able to make good preparations for this major event and to benefit from its significant positive ramifications on the overall economic conditions and if the recommendations in the EU study are taken into account, it can be said that the people of the Gulf can celebrate the birth of their single currency on the first day of January, 2010.

Dr Mohammed Al Asoomi is a UAE economic expert