A report by Dun & Bradstreet (D&B), one of the world’s top business consultancies, downplays the benefits of a common currency agreed in this week’s Oman summit: “While a single currency is economically achievable, its benefits to the GCC would be minimal”
Leaders of the six member nations of the Gulf Cooperative Council agreed to adopt a single currency for all their countries no later than 2010, with several gradual steps to be taken until the 2010 deadline in order to enable such a monetary union.
A report prepared by Dun & Bradstreet before the summit that analyzed the viability and the benefits of a common GCC currency and asked two main questions: 1) are the economies ready for a single currency; and 2) how beneficial will a common currency be to the GCC countries?
Analyzing the requirements for a single currency, the D&B report was very positive on the situation in the Gulf. The report pointed out that in order to achieve a single currency, the GCC economies require a similar set of targets to the Maastricht criteria that prevail in Europe. In the majority of cases these criteria have already been achieved, or could be achieved with government commitment. D&B notes that the exchange rates in the region are relatively stable since all bar the Kuwaiti Dinar are tied to the US dollar, and that inflation rates in all GCC countries are low. Also, the public debt and the budget deficits in the majority of GCC countries is low as well.
However, on the question of the potential benefits of a single currency, D&B summarized that while a single currency is economically achievable, its benefits to the GCC would be minimal.
A single currency with an independent central bank would impose the benefits of more transparent economic decision-making, and eliminate disruptions to trade and investment. However, the GCC countries to produce similar goods, and both the GCC governments and the private sector do not tend to investments exclusively in the region. A common currency is therefore unlikely to promote trade and investment beyond levels that would otherwise have occurred.
The report notes that another potential benefit - greater international exchange rate stability - would be of little relevance, since a common GCC currency would remain subject to oil price fluctuations and would not carry sufficient international weight compared with the US dollar, the euro or the yen. Thus, while a single currency is economically achievable, its benefits to the GCC would be minimal.
Although the D&B report finds little benefits to the GCC common currency, it should be pointed out that the date of introduction of the common currency is 2010, and until that date is reached many of the basic assumptions the D&B analysis used may have change, in part due to the unified currency. (www.albawaba.com)
