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Write a 2 page essay on GCC Common Currency.a unified economic system having a unified currency will do much to stabilize this situation for them and the oil importing market (Al-Jasser & Al-Hamidy 11
Write a 2 page essay on GCC Common Currency.
a unified economic system having a unified currency will do much to stabilize this situation for them and the oil importing market (Al-Jasser & Al-Hamidy 116).
The requisites for establishing a unified currency area necessitates the free movement of national goods, labour and capital across borders within the area, greatly enhancing trade among the member countries. Full customs union, a precursor to trade liberalization, is expected to increase inter-GCC trade to 20% in 2015 and 25% in 2020 (Kawach).
CON: There presently exists a great disparity in the size of the economy of Saudi Arabia as compared to the other member countries, so there should be a more careful and gradual integration of movements of resources so as not to cause destabilization among the smaller economies. Furthermore, the customs union began in 2005 is not yet fully implemented with many reservations still in place at present. Also, boosting regional trade requires diversifying away from oil, which still accounts for 90 percent of export revenues (Hancock).
PRO: The integration of the individual economies should be carefully managed so that the valuation of assets would not be unduly distorted. Measures have been initiated to interlink the countries’ stock markets in order to accommodate cross listing and trading of equities and other securities. The common currency also eliminates foreign exchange risk within the GCC area, because the need to convert from one currency to another would have been eliminated.
CON: In the process of unification, financial assets which are denominated in national currencies should not suffer in valuation in the new currency. Financial asset valuation depends to an extent on the future return on investment in comparison with inflation, nominal interest rates, and foreign exchange rates (Al-Jasser & Al-Hamidy 116). The efforts to unify the customs and markets operations that began in 2003 to 2005 are still to be completed (Mohamed & Irandoust
