Complex Made Simple

Can the GCC unify their currencies under an economic bloc?

The Gulf Cooperation Council is pressing ahead with plans for an economic union between its six members in just four years’ time

There is a desirability for a special “business visa” to aid commerce In these past 40 years, Gulf states abolished duties on locally made products The biggest obstacle facing a unified GCC currency is the oversight aspect

The Gulf Cooperation Council is pressing ahead with plans for an economic union between its six members in just four years’ time, Nayef Al-Hajjraf, the secretary-general of the GCC told Arab News.

He said the verdict of the recent 42nd summit of GCC leaders in Riyad was conclusive. “The deadline is 2025. There is a lot of work ongoing. We are working on the customs union, we are working on the common market, and also lifting the barriers that might be in between.”

He added: “There is huge work that we conducted and completed actually over the last 20 years since the customs union was announced in 2003.”

In the course of a wide-ranging interview, he also talked of the need for a unified rate of value-added tax across the organization, the desirability for a special “business visa” to aid commerce and the GCC’s commitment to mutual defense security.

 “We are fully dedicated to implementing what was adopted by the late King Salman and his vision in 2015,” Al-Hajjraf said.

Al-Hajjraf also held out the prospect of the introduction of a special visa for business travelers in the GCC in order to facilitate cross-border trade.

“That’s a great idea. It is on our agenda. It has been discussed last year at several meetings and we hope that soon we will conclude this.”

Egypt, too, will play an increasingly influential role in regional affairs and in relations with the GCC, he said. “Egypt is at the heart of the Arab world and has a historical role. We need to see that this relation is taking an institutionalized way.”

A GCC common currency

In these past 40 years, Gulf states abolished duties on locally made products to unify customs tariffs and established the GCC power grid and rail network.

However, progress towards issuing a Gulf-wide currency has ground to a halt. The GCC states have only agreed on the exchange rate margin for their currency transfers within the region, in addition to establishing a headquarters for the Gulf Central Bank.

Realistically speaking, the currency union is one of the most difficult stages in unifying the GCC economies and establishing a common market. In the European Union, the euro was issued decades after its formation. Yet, it took the EU states less than 40 years to bring out the common currency.  

Strengthening monetary cooperation is one of the most complex issues due to the ramification of multiple policies, which directly and significantly affect the overall economic, financial and investment conditions in bloc countries. This issue is even more complicated in cases where there are frequent interventions in monetary decisions.

The biggest obstacle facing a unified GCC currency is the oversight aspect.

This begins with ensuring the full independence of the Gulf Central Bank, away from any interference, with its chairman and board of directors to be elected and given full powers to formulate monetary policies suitable for the Gulf’s economy as a whole.

All member-state currencies, except the Kuwaiti dinar, are pegged to the US dollar.  A unified Gulf currency, if agreed upon, must be linked initially to the dollar as well, especially as the GCC states lack the competencies in working out unified monetary policies.  

Saudi Crown Prince Mohammed bin Salman’s whistlestop tour of the Gulf capitals last month reinvigorated the tradition of personally inviting leaders to a GCC summit. The gesture, which has in recent years been relegated to the organization’s secretary-general, suggested a willingness to reinvest in Gulf unity.

Saudi Arabia, which accounts for 65% of the combined economy and more than 80% of GCC territory, will need to take the lead while still considering divergence of opinion to avoid disunity.