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Volume :13 Issue : 51 1987      Add To Cart                                                                    Download

GULF MONETARY SYSTEMS: INDEPENDENCE VS UNIFICATION

Auther : By: Richard Hayek

           From the beginning of the twentieth century until the present, monetary systems and currencies in circulation in the Arab Gulf countries have variegated from the Austrian Taylor Maria-Theresa to the Indian Silver Rupee, and further, to the British Gold Sterling and the Golden Saudi Riyal.  Finally, towards the end of the sixties, Arab Gulf monetary systems were settled with the beginning of the political and economic “awakening” which swifted through the region.  Only then had wach state established its own monetary authorities for issuing its national currency.  These authorities varied in form Central Banks or Monetary Agencies.  Currencies also varied-Riyal, Dirham or Dinar.  The monetary authorities adopted modern rules through which they organized their monetary systems and banking activities.  Moreover, they laid the foundation for building the monetary cover and setting the rules for the exchange value of their local currencies.

           Bahrain, Qatar, UAE and Saudi Arabia used the Special Drawing Rights (SDR) as a measure to set the value of their currencies on the international markets.  Kuwait adopted a basket of currencies as the basis for the Dinar’s (KD) exchange rate.  Oman used the US dollars to determine the exchange rate of its Riyal (OR).

           Later on, with the signing of the Unified Economic Agreement between member states of the Gulf Co-operation Council (GCC), the creation of the “Unified Gulf Monetary Zone” has become apparent and necessary to complete the political and Economic integration among the member states. Thus from the theoretical point of view, monetary integration can be defined as follows:

 -         Creation of a unified currency.

-         Establishment of Payment Union.

-         Reserve pooling.

-         Exchange rate co-ordination.

-         Monetary co-ordination.

-         Creation of Parallel Currency.

-         Capital Market Integration.

-         Common policies towards external capital flows.

 

As for the practical application for the Gulf Cooperation Council and the problems that may arise from the pros and cons of such integration, options may be confined to only three.  They are:

 Option One:

           Creation of a joint currency that could be based on Joint Gulf Unit (JGU) = 0.10 grams of pure gold + 10 liters of crude oil + one unit of Special Drawing Rights (SDR).

 Option two:

           The exchange rate of the GCC’s currencies can be defined according to unified principles in which a basket of foreign currencies and a quantity of crude oil can have a specific weight in the formation of the new formula; for example:

           US dollar             =50%

          Dutch Mark         =10%

          Japanese Yen       =10%

          French Franc       =5%

          Sterling Pound     =5%

          Quantity of Oil     =20%

 Option three:

           Coordination in financial, monetary, banking, investment, trade and oil policies starting with circulating a joint currency among the member states which can be formulated from specific ratios of national currencies.  The formula can be as follows:

           Saudi Riyal         = 48%

          Kuwaiti Dinar       = 20%

          UAE Dirham        = 20%

          Omani Riyal         = 5%

          Qatari Riyal          = 4%

          Bahraini Dinar      = 3%

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