The Institutional Framework of the Gulf Central Bank

This paper discusses the viable alternatives for a suitable institutional and governance framework for the policymaking body presiding over the GMU. The authors review a series of alternatives, from the simplest one (i.e. a governors’ council formed by the governors of the national central banks and monetary authorities, each endowed with a single equal vote), to the more elaborate ones, involving the set-up of a supranational institution, a Gulf Central Bank (GCB) with permanent staff, an appointed president and an executive board, which together with the national governors would form a monetary policy council (MPC) responsible for the setting of monetary policy instruments and taking decisions in all the main areas of monetary policy. The members of the MPC could be given equal voting rights, or voting power weighted according to the economic and financial size of each country, with some corrective counterweight mechanisms, such as a specific voting weight for the president and/or the executive board to provide checks and balances. The solution the authors feel markets (and the public) would find more credible and suitable would be one involving the creation of a new GCB with its own staff and an independent executive board, because it would strengthen the authority and sustainability of the institutional arrangement, and create an organisation that is an effective counterpart of the other major international central banks and financial markets.