Creating a single GCC currency is good news for Gulf business

The Gulf Cooperation Countries have a head start in creating a monetary union. All the six nation states have currencies whose value is pegged to the US dollar, and even Kuwait fell into line a few years ago by abandoning its currency basket.

It is not quite true to say that the dirham or riyal is just a US dollar by another name. Saudi interest rates for example have been ahead of US rates in recent months to try to calm the economic boom. But without treading on central bank toes, their margin for maneuver is already rather limited.

However, this is an excellent position from which to set convergence criteria for inflation, public debt and interest rates to create a single currency. For the changes required will necessarily also be rather small.

Euro precedent

It was more complicated for the euro area, for example, with the economies of Germany and Greece poles apart. But the benefits are already clear to see, and while European business certainly has its problems, almost everyone is agreed that creating a single currency has eliminated problems and not caused them.

A single GCC currency is not just good for the business traveler, who will no longer have to carry Qatari riyals for a visit to Doha from Dubai. It is greatly beneficial to the formation of cross border companies with economies of scale that will deliver a productivity bonus to shareholders.

Just imagine the problems of consolidating accounts in six different currencies, and paying salaries in six different currencies. It makes day-to-day business unnecessarily complex and distracts from actual trading concerns.

Cross-border business

But the single currency is a grandfather of all economic reforms. In making cross-border business easier it is also a facilitator of mergers, acquisitions and takeovers to deliver the sort of regional business amalgamations that can compete with the multinationals, if not internationally then at least in their own backyard.

Europe is starting to benefit from transnational mega-mergers, often at the level of small and medium enterprises that many analysts believe is the major quiet but unseen revolution in the regional economy of recent years. This is beginning to produce the kind of enterprises that can compete globally with US giants.

Indeed, the United States has long benefited from having a single currency, and has become the currency of reserve for the world. It might be ambitious to expect a future GCC currency to achieve the status of a global reserve currency, but with the hydro-carbon resources of the region behind it, this might not be impossible.

Naming the new currency is another issue entirely, and for now the central bankers of the GCC have ducked this question.