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NEWS ANALYSIS GCC MONETARY UNION
l Easy transition
Compared with the difficulties
experienced by many
European Union (EU)
member states when they
adopted the euro between
1999 and 1 Jan, 2002, monetary
union is expected to
be relatively painless in
the Gulf.
There are a host of reasons
for this. For example,
just five currencies
are scheduled to
merge initially in the
Gulf, compared with
11 when the euro
was first launched. In
addition, there are
only about 40 million
people living in the GCC
region, compared with a
EU population of about 300
million at the time it moved
to the new currency.
Then there is the
common link with the
dollar. In the report ‘An
Assessment of the Progress
towards GCC Monetary
Union’ released for the
DIFC in August, Dr Saidi
notes that unlike Europe in
1999, the GCC already
enjoys a de facto monetary
union because of the
member nations’ currencies’
common pegging to
the dollar.
“Gulf monetary union
(GMU) would simply
strengthen this commitment
and extend the benefit
of currency stability to
financial markets, industries
and citizens, by fostering
more intense trade
relationships, and attracting
international capital,”
Dr Saidi’s report says.
l Common ideas
Deon Vernooy, senior executive
officer of Emirates
Investment Services, the
investment arm of Emirates
NBD Group, which is the
Gulf’s largest banking
organisation, is among
NAMING THE CURRENCY
While merging the GCC currencies into one monetary system may
prove relatively easy, agreeing on a name – and whose national
heroes will grace the coins and paper – could be trickier (see the
proposed design by London consultancy Incide below).
It proved problematic in Europe, as Germany said a reluctant
‘auf wiedersehen’ to its beloved Deutschmark and France bid ‘adieu’
to the franc. As for the British, of course, they still have not parted
with pounds and pence.
For now the proposed GCC single currency does not yet have
a name, although some have suggested the
‘khaleeji’, after the Arabic word meaning ‘of the
gulf’. But it is thought that by the end of the
year, a name will have been chosen.
Dr Saidi says he thinks the final
choice will be between the dirham,
riyal and dinar, as people feel an
innate attachment to currencies, and
so prefer the name of one they already
know, even if it is not their own, to
a new one.
those
w h o
share Dr
Saidi’s vision. He says he
sees the move towards a
single Gulf currency as the
beginning of a much broader
integration that eventually
will enable institutions
like his to market their
products across borders in
the Middle East the way
that they increasingly are
able to do in Europe.
“We have high hopes
for the GCC as both a monetary
bloc and a common
market,” he adds.
Much has already
changed since the GCC
Common Market was
launched in January. Now,
nationals of the six member
Fiscal deficit criterion
%
32
24
16
8
0
-8
Bahrain Kuwait Oman Qatar Saudi Arabia UAE
Source: Dubai International Financial Centre
states can move freely
across one anothers’ borders,
and work, invest, buy
houses and companies,
and trade shares in whichever
state they are in, much
like as in the EU.
l Sales framework
Among the specific changes
Vernooy and other Gulf
financial products specialists
say they would like
to see following monetary
union would be a
Gulf version of the EU’s
Undertakings for Collective
Investment in Transferable
Securities (Ucits) directive.
Ucits provides a framework
for investment funds
to be sold cross-border
’07 fiscal balance as GDP
Fiscal deficit criterion
INTERNATIONAL ADVISER [www.international-adviser.com] OCTOBER 2008
in EU member states. It
was initially established in
1985, with major changes
subsequently made in 2001
and 2007.
The benefits of Ucits
include significant economies
of scale that reduce
costs for investment managers,
enabling them to
boost profits as well as pass
savings to their customers.
For example, Friends
Provident Middle East general
manager Matthew
Waterfield thinks a single
Gulf currency would “simplify
the expansion process”
for financial products
providers looking to grow
their GCC operations by
enabling them to accommodate
only one currency
rather than five or six.
According to Waterfield,
Friends Provident International
has already started
a “contingency project” in
its GCC offices to ensure it
is prepared “if and when
any announcement [to go
ahead with monetary union]
is made”.
In his report, Dr Saidi
emphasises that a number
of policy issues needed to
be addressed. Of these, he
noted that inflation, a problem
for some of the
Gulf states recently, “should
be the priority”. He also
calls on GCC states to invest
in building their statistical
and financial infrastructure
to provide adequate data
reporting.
He says: “In contrast to
the EU, the GCC countries
lack a supranational statistical
agency, like Eurostat,
which provides detailed
definitions for variables
such as public debt or government
budget deficits
and periodically conducts
audits of the official figures.
Furthermore, a CPI
[consumer price index]
definition valid for all
GCC countries has not
been provided.”
“ Compared with
the difficulties
experienced by many
EU member states
when they adopted
the euro, monetary
union is expected to
be relatively painless
”
in the Gulf
KEY POINTS
GCC monetary union could
eventually lead to cross-border
investment product sales as
seen in continental Europe.
It will also provide a simplified
framework for companies
looking to grow in the region.
But key issues such as
inflation must be addressed
before monetary union
happens.
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