The member countries of the Cooperation Council for the Arab States of the Gulf (CCASG) are negotiating with the UAE and Oman on the possible inclusion of these countries in a monetary union, reported Arab News. Saudi Arabia, Bahrain, Kuwait and Qatar have already agreed to such a step. As Anas al-Saleh, Kuwaiti Finance Minister, stated, the participants of this project hope that the project of the creation of the Dinar, that is the name of the new currency, to be implemented without delay, since it has a long-term strategic significance for the Persian Gulf countries in economic and political terms.
According to the Russian magazine “Expert online”, the mutual trade volume between the CCASG member countries exceeds $92 billion. This figure may increase by 5% during 2014. The creation of the monetary union will increase the attractiveness of regional markets for foreign investment and strengthen political stability in the region. In particular, the production volume of the 6 CCASG countries let this organization to rank 13-th place on the list of the largest economies in the world; now, of all the CCASG countries, only Saudi Arabia is a G20 member.
The regional currency union will allow the countries to reduce expenses on transactions in national currencies. Both the common market and the common Central Bank, which will be formed as a result of entering the currency bloc, should make the Gulf countries more powerful in the international financial system.
The single currency in the region was planned to be introduce in 2010, but the participants’ disagreement on some issues did not let it happen. Besides the technical aspects, it is necessary to change national legislation, overcome traditional prejudice to the possibility of delegating a part of the economic sovereignty, prevent the possible export of inflation. In addition, some countries fear that monetary union will negatively affect the flexibility in each member country’s decision-making. Some experts believe we shouldn’t expect “the second Euro-zone” to appear. But the monetary alliance of the Gulf countries is still quite possible, since the rejection of the dollar leads to more advantages than disadvantages. Switching to own currency for calculations inside and outside the alliance can occur very quickly, because the energy recourses produced in the region are in great demand and the price will not change. The Dinar, solid and stable currency guaranteed by economically advanced countries, will become a serious competitor of the dollar, oppose to the Yuan, which is bound hand and foot, and not volatile Euro.
However, the establishment of a monetary union is not easy and quick. Special infrastructure is necessary for bidding: clearing center, single rules of currency regulation and circulation and, which is the most important, a deeper integration of the common Central Bank with all this system. Today the GDP of all the countries of the Persian Gulf does not reach even 20% of European or American GDP, and the trade is only slightly more than $1 trillion, compared with almost $4.5 trillion in the US. However, the world is tired of the domination of one-two currencies. The appearance of a new currency is a good sign that it isn’t worth carrying the game with monetary stimulation too far.