Review: Currency Union and Exchange Rate Issues, edited by Ronald MacDonald and Abdulrazak al Faris
Q&A: Not exactly gaining currency
Last Updated: June 8, 2011
What is the GCC monetary union plan? Saudi Arabia, Qatar, Kuwait and Bahrain would share a single currency under the plan. It would also involve closer integration of financial systems and economies of the participating nations. The UAE has frequently stated it will stand by its decision of May 2009 to remain outside the monetary union. Oman has also ruled itself out.
What is the thinking behind the plan? Creating a single currency has been highlighted as necessary to deepen regional financial markets. In theory, loosening fixed exchange rates and integrating monetary policies more closely would help to create a common platform for investment.
When will it happen? The original deadline of for the introduction of the GCC common currency has been missed. A desire to learn from the EU turmoil has been a reason given for the lack of clarity about another deadline for its introduction.
The possibility of a Gulf currency union has been one of the most significant economic debates in recent years.
This new collection of essays offers an impressive array of writers who provide a thorough rundown of what's involved for any country considering embarking on such an ambitious project.
However, it may be a bit much for the casual reader. Peppered with complex formulas and exchange rate tables, the book is aimed at economists and finance professionals.
Editors Ronald MacDonald, the professor of political economy at the University of Glasgow, and Abdulrazak al Faris, the chief economist and chief executive of research at Dubai Economic Council, have assembled a variety of writers from academia and public life.
From Willem Buiter, the chief economist of Citibank, to Warren Coats, the director of the Cayman Islands Monetary Authority, their experience gives the book gravitas.
But there are problems, too.
Some of the content is outdated. The introduction starts with the sentence: "The GCC - the United Arab Emirates, the State of Bahrain, the Kingdom of Saudi Arabia, the Sultanate of Oman, the State of Qatar and the State of Kuwait - has an objective … the formation of a monetary union in 2010."
While that point may have been accurate at the time of writing, it is no longer the case.
Both the UAE and Oman have since pulled out of the plans, while the original deadline of last year has come and gone.
Nonetheless, the GCC states still involved appear committed so the overall thrust remains valid.
Disappointingly, the essay on the European experience was written before the outbreak of the sovereign debt crisis in the euro zone.
5 monetary unions
1 Euro
2 Eastern Caribbean Currency Union
3 Central American Monetary Union
4 West African Economic and Monetary Union
5 Central African Economic and Monetary Union
Even so, this is an insightful analysis on a topic that will continue to gain importance in the region.
The Quote: "The credibility of the US dollar peg has been greatly undermined by recent events and especially given the asymmetric nature of the US and UAE economies." Ronald McDonald, professor of political economy at the University of Glasgow
