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GCC Currency

GCC Currency

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Published by Aisha

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Published by: Aisha on Jun 03, 2010
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05/25/2012

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 Towards aCommon GCCCurrency
GCC’s Best Exchange Rate Regime
This paper focuses on the best exchange rate system to peg the newGCC common currency to it, whether it is the US Dollar, or the basket of currencies or to more flexible regime which is the floating regime andthen examine the empirical evidence on the delineation of regimes andtheir macro performance.
2010
Aisha Al-OmranAmerican University f Kuwait25-May-10
 
GCC COMMON CURRENCY
Index
1.
Introduction…………………………………………………… 3
2.
Literary Review………...…………………………………….. 4
3.
Methodology………………………… ……………………….5
4.
Data…...………………...…………………………………….. 5
What is an OCA?
…………………………………….. 5
 Brief History of a Common GCC Currency
………….. 6
 Exchange rate regime of the Khaleeji 
……………….. 7
The Optimal Exchange rate regime
…………………. 8
5.
Results and Discussion……………. ……………………….12
6.
Conclusion…………………………………………………….13
7.
References…………………………………………………….15
2
 
GCC COMMON CURRENCY
Introduction
Kuwait’s last ruler has come up with the idea of establishing a CooperationCouncil for the Arab States of the Gulf in the early eighties of the previous century.Kuwait, Saudi Arabia, United Arab Emirates, Qatar, Bahrain and Oman weremembers of this council (GCC countries hereafter). GCC leaders came up with anEconomic Agreement to establish a complete economic integration. The economicagreement was meant to be a first block in the monetary and economic union.Arab Gulf Countries or the GCC countries are known to be of the world’shighest GDP’s; So that, a monetary union within these countries could be one of themost important monetary unions around the world second after the European Union.As this Union is very important the exchange rate regime that would be usedwithin the region would affect the world’s economy as the region is one of the mostopened region to the world in terms of trade.Leaders of GCC countries agreed to adopt a common exchange rate regime tohelp them maintaining the parity between the GCC member countries as a first steptowards the monetary union. This meeting has been held in Bahrain in year 2000.However, they have agreed on that the start date of pegging against the commoncurrency is on 2003 and the common peg to be against the US Dollar.Starting from 2003, all the GCC currencies were fully pegged to the USDollar. However, on the 2007 while the global crisis was taking place, the US dollar was depreciating dramatically against the major currencies of the world; So that,Kuwait depegged its currency from the US Dollar and pegged the Kuwaiti Dinar to a basket of currencies that was dominated by the US Dollar. Through all these doubts,this contributed to the delay of issuing the common currency plus the demurred of Oman and the UAE out of the convention for economic and political reasonsrespectively.US Dollar has a very strong relationship with currencies of the GCC currencies, sincemost of their currencies are pegged with the US Dollar except for Kuwait which hasan exchange rate regime of a basket of currencies that is dominated by the US Dollar.As for the recent changes, GCC countries unofficially considered manyoptions other than pegging the new common currency to the US Dollar, such as the basket of currencies and the more flexible regime which is the floating. This studytries to examine the optimal choice of the exchange rate system for the GCCMonetary Union.3

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