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Regional initiative in the Gulf Arab States: the search for a common currency

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  • Syed Basher

Abstract

Purpose - – This paper aims to make two main additions to the literature on Gulf Cooperation Council (GCC) monetary union. First, it emphasizes that the creation of a fiscal union is necessary for the GCC monetary union to succeed. Second, it proposes some alternatives to pegging to the dollar, which would allow the GCC countries to absorb large swings in global commodity prices (oil, food) in the short to medium run. Design/methodology/approach - – This paper uses exploratory research to shed light on the feasibility of a common currency for the proposed GCC Monetary Union. Findings - – Given the challenges associated with creating a GCC fiscal union as a requirement for a successful monetary union, the GCC countries could easily set up an “anti-crisis fund” to partially protect themselves from the economic and social costs of unforeseen crises. A basket, band and crawl (BBC) currency system, at an individual country level or a regional level, would allow the GCC countries to cope with not just large swings in global commodity prices, but also as an effective instrument for the governments to promote their economic diversification. Practical implications - – This paper offers a template for the GCC central banks to consider the BBC currency system as an alternative to their existing dollar peg regime. Originality/value - – This is the first paper that attempts to provide a formal argument in support of the BBC currency system as an alternative exchange rate arrangement for the GCC countries.

Suggested Citation

  • Syed Basher, 2015. "Regional initiative in the Gulf Arab States: the search for a common currency," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing, vol. 8(2), pages 185-202, June.
  • Handle: RePEc:eme:imefpp:v:8:y:2015:i:2:p:185-202
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    References listed on IDEAS

    as
    1. Mohsin S. Khan, 2010. "The GCC Monetary Union: Choice of Exchange Rate Regime," Chapters,in: Currency Union and Exchange Rate Issues, chapter 5 Edward Elgar Publishing.
    2. Michael D. Bordo & Lars Jonung & Agnieszka Markiewicz, 2013. "A Fiscal Union for the Euro: Some Lessons from History ," CESifo Economic Studies, CESifo, vol. 59(3), pages 449-488, September.
    3. Serhan Cevik, 2011. "Policy Coordination in Fiscal Federalism; Drawing Lessons From the Dubai Debt Crisis," IMF Working Papers 11/147, International Monetary Fund.
    4. Syed Abul Basher & Elsayed Mousa Elsamadisy, 2012. "Country heterogeneity and long-run determinants of inflation in the Gulf Arab states," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 36(2), pages 170-203, June.
    5. Frankel, Jeffrey A., 2005. "Peg the export price index: A proposed monetary regime for small countries," Journal of Policy Modeling, Elsevier, vol. 27(4), pages 495-508, June.
    6. Elsamadisy, Elsayed Mousa & Alkhater, Khalid Rashid & Basher, Syed Abul, 2014. "Pre- versus post-crisis central banking in Qatar," Journal of Policy Modeling, Elsevier, vol. 36(2), pages 330-352.
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    More about this item

    Keywords

    GCC countries; Fiscal policy; Monetary economic;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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