GCC Economic Profile and Iraq

[decal]

GCC Economic Profile and Iraq

Posted: March 25, 2011 by THE xxxxxxxxxxxxxx - Just Hopin in Iraqi Dinar/Politics

Tags: Cooperation Council for the Arab States of the Gulf, economy, exchange rate, GCC, Iraq, kuwait, Oman, Saudi Arabia, United Arab Emirates

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The following is a cursory glance at the six nations which comprise of the GCC and how it compares to Iraq. The six nations which is made up of Kuwait, Bahrain, Oman, United Arab Emirates, Qatar, and Saudi Arabia indicate exchange rates ranging from about $0.27 USD upward to $3.61 USD and averaging $1.61 USD. The economic indicators primarily reflect conditions as of 2010. http://another site.files.wordpress.com/2011/03/grid-1.jpg

The grid offers some indication of the strengths of the GCC union and how it collectively compares directly to Iraq. Each economic indicator and the GCC country which compared the closest was extracted and then summarized below. The eight indicators provided an overall average exchange rate of $1.98 USD and a median exchange rate of $2.60 USD. By comparison Oman compared closest overall with similarities in Debt to GDP ratio, Inflation rate, and Global Exports.

[cutout] The economic profile is not empirical evidence of a future exchange rate and is subjective to opinion. However it does promote the theory of a future revaluation as Iraq’s GCC neighbors each have an exchange rate of $0.27 USD to $3.61 USD. As demonstrated by the economic profile Iraq fares equal to or better than its Middle East counterparts.

[VIZIOIRAQI]

Edited this post, please don't promote other sites with there site names in your posts

[AudiS4]

Good info! I'm going to see what kind of comparisons I can make beyond what you did.

[billy goat]

My bet is on the 27 cent (Saudi Riyal) value. Saudi Arabia is the 'Godfather' to this group.

[jaminjimmy90]

My bet is on the 27 cent (Saudi Riyal) value. Saudi Arabia is the 'Godfather' to this group.

babylon is not gonna be the world economic leader at 27 cents my opinion it will be much higher just my opinion

[Butifldrm]

I read this article back in 2010 when rumors first announced that Iraq would soon join the GCC. The keyword was rumor back then. Now that the rumor looks more like the truth, this article seems more relevant, especially when we look at the devaluation of the dollar.

The True Story of the Unified Gulf Currency

Very famous are the tales of One Thousand and One Nights, recounted repeatedly since their compilation during the Islamic Golden Age. Composed of interweaved stories collected over the centuries, the epic tale never ceased to introduce new episodes as it progressed. Throughout the plotline, the storyteller, Scheherazade, would every dawn leave her King tantalized with yet another cliff-hanger, postponing what seemed to be the tale's finale to the following night.

Nowadays, a saga of multiple twists and turns is strikingly similar to these ancient Arab folk tales. The Gulf dream to create a unified currency among its states stands as a story of numerous chapters linked together by cliffhangers that leave spectators wondering why this dream has not yet been achieved.

The idea of a unified Gulf currency initially surfaced with the establishment of the Gulf Cooperation Council (GCC) in 1981 as one of the group's primary future goals. Based on the notion of a strong economic bloc, in 1982, the six-member group ratified an agreement "to coordinate their financial, monetary and banking policies and enhance cooperation between monetary agencies and central banks, including an endeavor to establish a joint currency." Apart from establishing a free trade zone in 1983, progress was modest. As time went by, the goals of the past did not seem in any way foreseeable in the near future.

It was not until 20 years later that the idea was put to a second and significantly more serious discussion. Inspired by the success of the third stage of the European Economic and Monetary Union (EMU) through which 11 European nations adopted the Euro as their unified currency in 1999, the GCC members decided to resurrect their reverie. In January 2001, the members agreed to draw up legislation that would unify their monetary policies as a primary step towards currency unification. A timetable for the synchronization of Gulf monetary and banking policies was formed whereby the creation of monetary union legislation was scheduled for 2005 followed by a monetary and currency union in 2010. This in turn entailed an agreement to peg GCC country currencies to the US dollar until the new currency took effect.

Gradually, the currency unification plan gained momentum triggered by the GCC's establishment of a customs union in addition to an external tariff in 2003 at which point all members had collectively pegged their currencies to the US dollar.

The agenda promised splendid remuneration for Gulf neighbors, potentially making the GCC bloc the largest economic region outside the Euro zone if all went according to plan. The region's control over 45 percent of the world's oil resources has forced its countries to depend heavily on oil revenues. And there is nothing that the GCC countries would appreciate more than to alleviate pressure off their stocks of black gold and jumpstart other sectors of their economies. The currency union was expected to enhance policy coordination and transparency in the region, which would in turn lead to increased cross border investment and boost trade as a result of the elimination of transactions costs.

Theoretically, the path towards full economic integration was a sure thing. Realistically however, there were numerous deficiencies in planning, coordination of efforts and the implementation of pre-arranged schemes. Not to mention that international turbulences had a big say in preserving Gulf currency unification as a mirage during the second half of the past decade.

To Peg or not to Peg?

Initially, the six members announced that the currency would be pegged to the US dollar as soon as it sees light. Based on that, an agreement was reached to peg the GCC currencies to the US dollar in hopes of achieving monetary union prior to coining the new currency. The first half of the past decade saw the six states peg their currencies to the American dollar based on the stability of its high value at the time.

With the emergence of the economic crunch the value of the dollar depreciated, losing its attractiveness and leading to a debate concerning the usage of the dollar as an anchor. Accordingly, Gulf nations began considering the option of pegging their currency to a selected basket of currencies including the Euro, or furthermore, a floating exchange regime.

Some nations have gone as far as to demand that the unified currency be anchored to gold to eradicate the forbidden riba (usury) from the Gulf Islamic financial systems. At the end of the day, the issue remains uncertain.

The British Syndrome

But the hearsay doesn't end there. Amidst striking inconsistencies among GCC members, in 2007, Kuwait removed its dollar peg, hitting the GCC monetary union where it hurts most. This was followed by the agreement among Gulf Arab central bankers to develop separate policies in dealing with rising inflation.

When the UK willingly abandoned the Euro, it had reservations concerning the economic, financial and consequently, political commitments it would have to abide by. Likewise, Oman in 2008, took the decision to withdraw from the monetary union based on its "monetary immaturity" and inability to meet the pre-requisites for a monetary union in 2010.

To save face and try regaining lost ground, in 2008 the Gulf central bankers drafted a final monetary union agreement and agreed to establish a monetary council in order to pave the way to a common central bank in 2008. That however did not prevent the Emirati withdrawal in 2009.

At first glance, the UAE's withdrawal may have been explained by the GCC's decision to locate the common central bank in Saudi Arabia and not UAE. Parochial as the reasoning may be, it made sense bearing in mind that the UAE was the first country to submit an application to host the GCC Central Bank in 2004, in addition to the fact that it does not currently host any GCC establishments.

Nonetheless, further scrutiny shows that the UAE had reservations concerning the union as well. Taking the EU as an example, the UAE believed that "a gradual adoption of a unit of account by the GCC countries for a reasonable period was necessary to test their collective monetary policy and assess what can be amended before moving it into the economy, and its impact on the GCC banking systems." Clearly, this did not happen, and the UAE, to avert risk like Oman, booked a ticket back home.

A Broken Brick

The establishment of the Gulf Monetary Council in 2008 may have marked the beginning of the institutionalization of the unified currency. Even so, this belated step still suffers from several shortcomings. The council should play the same role the European Monetary Institute had before being replaced by the European Central Bank.

Being the first brick in the awaited Central Bank, the monetary council was meant to coordinate the policies of the four states and plan the gradual introduction of the Central Bank. Ever since its establishment in 2008 however, the council has spent more time conducting research than building an institutional framework for the monetary union. The council has not yet decided the pegging policies of the union, nor has it defined common monetary tools or a financial crises system.

The unanimous election of the Saudi Arabian Monetary Agency governor as the first chairman of the Gulf Monetary Council last monthhas conversely come to renew aspirations for the future of the council and in turn, the monetary union. Muhammad Al-Jasser, the new chairman announced that the council's priority will be to "draw up the legal and organizational framework for the Central Bank in coordination with the central banks or monetary agencies of the member countries."

With the European tale in mind

Having taken one blow after the other, the GCC's decision to delay the monetary union to 2013 came as no surprise. But why hasn't the Arabian tale had a European ending?

If preparation was silver, execution would be gold. And this is where the European experiment excelled, unlike its Gulf counterpart thus far. Supposedly modeled on the EU example, the GCC fell short of implementing many of its plans due to ineffective coordination among its members and their inability to move from the planning phase to the action phase. Part of the EU's success can be seen in its well thought-out plan to coin its currency, which was divided into a number of phases to which its members abided. Not surprisingly, GCC states are still trailing behind on their agenda, having only established a semi-functional monetary council as a primary step.

The EU's incorporation of a large number of economically stable states has also made it immune to the absence of the UK, whereas the Emirati and Omani withdrawals have taken a lot of economic heave out of the Gulf mass.

Before its initiation, the European currency unification agenda was criticized for prioritizing the monetary union over the political one. The EU was also subject to criticism pertaining to an expected failure in moderating the discrepancy in unemployment rates due to the inflexibility of its labor markets and the difficulty of migration between regions. When directed towards the Gulf monetary union, this critique is somewhat accurate. Gulf countries have indeed been unable to establish a coherent political agenda among them, which was a reason for the withdrawal of two member states and the delay of the union as a whole.

Additionally, discussing the fiscal and monetary policies that will be used to regulate unemployment rates, along with other secondary issues, is premature, considering the members have yet to fulfill the prerequisites for an optimum currency area. That is not to mean that the regulation of unemployment rates among Gulf countries is impossible; on the contrary. Gulf countries do not suffer from the migration problems, and the diversity of customs and languages that European countries experience. For that reason, as soon as the monetary union takes effect, handling unemployment should be far easier for the Gulf than it has been for the EU.

Ironically, where the EU took time to adapt, the GCC wanted to jump in headfirst. The EU used a unit of account to test drive its monetary policy until eventually reaching the point of implementing a floating exchange rate. The GCC, however, still stands confused between pegging its currency to the dollar, a currency basket or opting for a floating exchange rate, without considering a transition phase. The indecision has augmented speculation among the GCC nations, who seem to be-up to this moment-tentative in their actions.

The road to a unified Gulf currency may have been paved with European-like intentions, but the continuous battle against inconsistency and the current economic disarray have postponed what should have been a happy ending. The upcoming phase should see the four remaining states undertake considerable changes in coordination among them. If not, the tale of the unified Gulf currency would remain endless like the Arabian nights.

First published: Friday 16 April 2010.

http://ezinearticles.com/?The-True-Story-of-the-Unified-Gulf-Currency&id=5767313

http://www.majalla.com/en/economics/article43746.ece

Article Source: http://EzineArticles.com/?expert=Wessam_Sherif