The GCC Monetary Union: Choice of Exchange Rate Regime
AbstractThe creation of a monetary union has been the primary objective of the Gulf Cooperation Council (GCC) members since the early 1980s. Significant progress has already been made in regional economic integration: The GCC countries have largely unrestricted intraregional mobility of goods, labor, and capital; regulation of the banking sector is being harmonized; and in 2008 the countries established a common market. Further, most of the convergence criteria established for entry into a monetary union have already been achieved. In establishing a monetary union, however, the GCC countries must decide on the exchange rate regime for the single currency. The countries’ use of a US dollar peg as an external anchor for monetary policy has so far served them well, but rising inflation and differing economic cycles from the United States in recent years has raised the question of whether the dollar peg remains the best policy. Mohsin Khan considers the costs and benefits of alternative exchange rate regimes for the GCC. These include continued use of a dollar peg, a peg to a basket of currencies such as the SDR or simply the dollar and euro, a peg to the export price of oil, and a managed floating exchange rate. In light of the structural characteristics of the GCC countries, Khan considers the dollar peg the best option following the establishment of a GCC monetary union. The peg has proved credible and is easy to administer. If further international integration in trade, services, and asset markets makes a higher degree of exchange rate flexibility desirable in the future, implementing a basket peg could provide this flexibility. Regardless, the choice of exchange rate regime for the GCC countries need not be permanent: The countries could initially peg the single GCC currency to the US dollar and then move to a more flexible regime as their policy needs and institutions develop.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Peterson Institute for International Economics in its series Working Paper Series with number WP09-1.
Date of creation: Apr 2009
Date of revision:
Exchange rate regimes; monetary unions; Gulf Cooperation Council;
Find related papers by JEL classification:
- F15 - International Economics - - Trade - - - Economic Integration
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-04-25 (All new papers)
- NEP-MAC-2009-04-25 (Macroeconomics)
- NEP-MON-2009-04-25 (Monetary Economics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Jay, Squalli, 2011. "Is the dollar peg suitable for the largest economies of the Gulf Cooperation Council?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(4), pages 496-512, October.
- Sayyed Mahdi Ziaei, 2013. "Evaluating the Effects of Monetary Policy Shocks on GCC Countries," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 43(2), pages 195-215, September.
- Rosmy Jean Louis & Mohamed Osman & Faruk Balli, 2010.
"Is the US Dollar a Suitable Anchor for the Newly Proposed GCC Currency?,"
The World Economy,
Wiley Blackwell, vol. 33(12), pages 1898-1922, December.
- Jean Louis, Rosmy & Balli, Faruk & Osman, Mohammad, 2009. "Is the US dollar a suitable anchor for the newly proposed GCC currency?," MPRA Paper 34003, University Library of Munich, Germany, revised 2010.
- Bassem Kamar & Jean-Etienne Carlotti & Russell C. Krueger, 2009. "Establishing Conversion Values for New Currency Unions: Method and Application to the planned Gulf Cooperation Council (GCC) Currency Union," IMF Working Papers 09/184, International Monetary Fund.
- Syed Abul, Basher, 2013. "Regional Initiative in the Gulf Arab States: The Search for a Common Currency," MPRA Paper 46486, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peterson Institute webmaster).
If references are entirely missing, you can add them using this form.