GCC unified currency 'will provide more price transparency'
Reduced transaction costs will become apparent, says senior official of grouping
* By Jumana Al Tamimi, Associate Editor, Gulf News
* Published: 00:00 December 30, 2009
* Gulf News
* The first step toward a unified currency is most likely to be as a unit of accounting, Dr Abdul Aziz Abu Hamad Aluwaisheg believes.
Dubai: With the GCC Monetary Union taking a big step forward at the Kuwait summit earlier this month, Gulf News spoke to Dr Abdul Aziz Abu Hamad Aluwaisheg, director-general of International Economic Relations, Gulf Cooperation Council, about the direction the project is likely to take.
Gulf News: After the GCC Monetary Union came into effect, what next? When will a unified central bank be established? When is the unified currency likely to be introduced?
DR ABDUL AZIZ ABU HAMAD ALUWAISHEG: During the GCC summit in Kuwait, it was announced that the four member states of the GCC Monetary Union have ratified the Monetary Union Treaty, thus establishing legally the GCC Monetary Union and setting in motion the process to arrive at a GCC unified currency. A meeting of central bank governors of monetary union member states is expected over the next few weeks to kick off the process of forming the GCC Monetary Council and deliberations will begin with the naming of members of the council.
The council is expected to start discharging its duties within two months of the last ratification, as stipulated in the Monetary Council Charter. What is its brief?
The monetary council will be run by a board of directors comprising central bank governors of member states. Its main tasks include coordination between national central banks regarding monetary policy as well as laying out the remaining technical steps towards the monetary union, including the name of the new currency, its design, safety specifications, and denominations.
It is also charged with completing the process of harmonisation of statistical systems and compatibility of payment systems, as well as a time-table for the launch of the new currency. The monetary council's board will be also in charge of verification of compliance with previously envisaged "convergence criteria" which include limits on public debt and budget deficits, as well as inflation and interest rates across member states.
One of the main functions of the monetary council is to pave the way for, or evolve into, the GCC Central Bank, which will be in charge of GCC unified monetary policy as well as "managing" the new currency.
In addition to the board of directors, the monetary council will have an executive body to carry out the board's instructions.
The most likely scenario is that, first, the new currency will be used as a unit of accounting and, after a sufficient period of time, it will be introduced as a currency in circulation for exchange and trade.
What does the monetary union mean to the participating countries? What difference will it make for ordinary citizens in the member countries?
There are several effects that will become apparent. In addition to the obvious fact that at some point there will be one currency instead of several — which will have great symbolic effect for the GCC as a whole — in concrete economic terms, the unified currency will reduce "transaction costs" of trade and exchange between member states.
These include, among other things, fees currently charged for exchanging currencies between member states.
Lowering of transaction costs would encourage trade in goods and services and benefit tourists as well. Judging from experiences of other regions, a unified currency could provide more price transparency by simplifying price comparisons across countries, which in turn helps consumers compare prices and probably influence a price reduction. There are of course other effects related to monetary and fiscal policies that are important, but these may not be immediately noticed by ordinary citizens.
What are the sectors that will benefit the most from the monetary union, in your opinion, and which ones will benefit the least?
Obviously, all economic sectors will be affected. However, those sectors engaged in intra-GCC trade, re-export, and tourism will be affected the most and will enjoy cost savings. Those sectors that do not engage in cross-border trade will be least affected.
Do you expect both the UAE and Oman to join the monetary union in the near future?
Everybody hopes that both the UAE and Oman will join the union in the near future. It benefits the GCC as a whole if all member states ascribe to the monetary union but these are of course sovereign decisions to be made by the two countries.
It must be kept in mind that both countries are founding members of the GCC and totally committed to economic integration between its member states and both have always been among the keenest to implement GCC resolutions, speedily and effectively, in all areas of joint GCC work, such as the common market, customs union and all other areas of economic integration.
Reduced transaction costs will become apparent, says senior official of grouping
* By Jumana Al Tamimi, Associate Editor, Gulf News
* Published: 00:00 December 30, 2009
* Gulf News
* The first step toward a unified currency is most likely to be as a unit of accounting, Dr Abdul Aziz Abu Hamad Aluwaisheg believes.
Dubai: With the GCC Monetary Union taking a big step forward at the Kuwait summit earlier this month, Gulf News spoke to Dr Abdul Aziz Abu Hamad Aluwaisheg, director-general of International Economic Relations, Gulf Cooperation Council, about the direction the project is likely to take.
Gulf News: After the GCC Monetary Union came into effect, what next? When will a unified central bank be established? When is the unified currency likely to be introduced?
DR ABDUL AZIZ ABU HAMAD ALUWAISHEG: During the GCC summit in Kuwait, it was announced that the four member states of the GCC Monetary Union have ratified the Monetary Union Treaty, thus establishing legally the GCC Monetary Union and setting in motion the process to arrive at a GCC unified currency. A meeting of central bank governors of monetary union member states is expected over the next few weeks to kick off the process of forming the GCC Monetary Council and deliberations will begin with the naming of members of the council.
The council is expected to start discharging its duties within two months of the last ratification, as stipulated in the Monetary Council Charter. What is its brief?
The monetary council will be run by a board of directors comprising central bank governors of member states. Its main tasks include coordination between national central banks regarding monetary policy as well as laying out the remaining technical steps towards the monetary union, including the name of the new currency, its design, safety specifications, and denominations.
It is also charged with completing the process of harmonisation of statistical systems and compatibility of payment systems, as well as a time-table for the launch of the new currency. The monetary council's board will be also in charge of verification of compliance with previously envisaged "convergence criteria" which include limits on public debt and budget deficits, as well as inflation and interest rates across member states.
One of the main functions of the monetary council is to pave the way for, or evolve into, the GCC Central Bank, which will be in charge of GCC unified monetary policy as well as "managing" the new currency.
In addition to the board of directors, the monetary council will have an executive body to carry out the board's instructions.
The most likely scenario is that, first, the new currency will be used as a unit of accounting and, after a sufficient period of time, it will be introduced as a currency in circulation for exchange and trade.
What does the monetary union mean to the participating countries? What difference will it make for ordinary citizens in the member countries?
There are several effects that will become apparent. In addition to the obvious fact that at some point there will be one currency instead of several — which will have great symbolic effect for the GCC as a whole — in concrete economic terms, the unified currency will reduce "transaction costs" of trade and exchange between member states.
These include, among other things, fees currently charged for exchanging currencies between member states.
Lowering of transaction costs would encourage trade in goods and services and benefit tourists as well. Judging from experiences of other regions, a unified currency could provide more price transparency by simplifying price comparisons across countries, which in turn helps consumers compare prices and probably influence a price reduction. There are of course other effects related to monetary and fiscal policies that are important, but these may not be immediately noticed by ordinary citizens.
What are the sectors that will benefit the most from the monetary union, in your opinion, and which ones will benefit the least?
Obviously, all economic sectors will be affected. However, those sectors engaged in intra-GCC trade, re-export, and tourism will be affected the most and will enjoy cost savings. Those sectors that do not engage in cross-border trade will be least affected.
Do you expect both the UAE and Oman to join the monetary union in the near future?
Everybody hopes that both the UAE and Oman will join the union in the near future. It benefits the GCC as a whole if all member states ascribe to the monetary union but these are of course sovereign decisions to be made by the two countries.
It must be kept in mind that both countries are founding members of the GCC and totally committed to economic integration between its member states and both have always been among the keenest to implement GCC resolutions, speedily and effectively, in all areas of joint GCC work, such as the common market, customs union and all other areas of economic integration.