Effects of a Currency Union for the Gulf Cooperation Council - Essay Example

The Viability, Practicability, and Effects of a Currency/Monetary Union for the Gulf Cooperation Council Background The Gulf Cooperation Council (GCC), more formally known as the Cooperation Council for the Arab States of the Gulf, is a trade bloc wherein six Arab states of the Persian Gulf carry with them many economic and social objectives. It encompasses about 630 million acres wherein Bahrain, Kuwait, Qatar, Oman, Saudi Arabia and the United Arab Emirates (UAE) are member states. The Iraq-Iran War, Iranian Revolution and Soviet invasion of Afghanistan were all major reasons the six countries mentioned above decided to form the GCC. This was primarily because they had the same vision of how their economies should be. They also agreed on what kind of defense is most effective against entities that could damage their countries. The council was created on May 25, 1981 while on November 11, 1981, a unified economic agreement was signed between the partner countries. After the signing of the agreement in Riyadh, Saudi Arabia, the member countries were referred to as the Gulf Cooperative Countries. The countries around the Persian Gulf are not all council members. Even nations like Iran or Iraq which border the Persian Gulf, did not come on board with the council. Meanwhile, Yemen seems to be warming up to the thought of joining the said cooperation. Also, its headquarters may be found in Saudi Arabia. The council, having an administrative structure, meets about twice every year. For its governing bodies, there is a supreme council, a council of foreign ministers, an arbitration commission, and a general secretariat. After implementing most of the provisions in their said agreement by the 1990s, the GCC decided to act on the security issues of their countries. By 1984, a deployment unit called the Peninsula Shield Force with a force of 5,000 men was formed for the council. With such, the member countries went on board with a mutual understanding of a way by which they are to defend against foreign attacks, effectively increasing the force's number to 22,000. But aside from being able to deal it out in the field, the council has also ventured into talks that would help end territorial disputes between their own members and other non-member countries. On January 1, 2008, the council's common market was introduced to the people of the gulf. This venture allowed the member people and companies of the cooperation to get over hurdles in cross country investments and services trade. GCC has many objectives. One of them is to be able to formulate regulations in industries like the economy, finance, trade, customs, tourism, legislation and administration. It also aims to cultivate advancements in mining, agriculture, water and animal resources. It also wants to set up various partnered ventures, strengthen the relationship between their people, establish many scientific research centers and be able to encourage additional help from the private sectors. Moreover, the council dreams of establishing a common monetary unit to be named Khaleeji by the year 2010. Recognizably, due to the richness of the six member countries from their oil, petroleum and natural gas reserves, their economies are some of the fastest growing in the world. Over $900 billion in assets are being maintained by UAE investors in order to create a tax base and economic foundation before their natural resources finally run out. According to the International Monetary Fund (IMF), the said region's 2006 Gross Domestic Product (GDP) was pegged at $717.8 billion. This was primarily because of the sudden economic growth in Qatar and the UAE. Just a year after, it became a whopping $1,022.62 billion. With the way it is going, the IMF predicts that it will reach about $1,112.076 billion by the end of this year and $1,210.112 by the end of 2009. A member country, Qatar, is also pegged to outrank Luxembourg as the topmost per capita grosser in GDP. Aside from their economies, their region has also been recently been the venue for world-famous events like the Asian Games in 2006 which was held in Doha, Qatar. The people from the said region are now targeting to become the venue of the 2016 Summer Olympic Games. The Concern According to a 2007 article from Global Research, the leaders of the GCC planned to launch a common market last January and a united currency about two years after. This was of course aside from their target of not losing out to the worth of a US dollar. During the announcement, GCC Secretary-General Abdul Rahman Al-Attiyah called their step toward the common market "a historic declaration." He added that they wanted to have equal opportunities for all GCC citizens. Opportunities for the citizens included the right to work in all government and private institutions in the council, buy and sell real estate and make other investments, move freely between the countries, and receive education and health benefits. The two-day gathering was attended by Iranian president Mahmoud Ahmadinejad, who offered his country's neighbors a regional security pact and a 12-point cooperation plan, with free trade and joint investment plans in oil and gas. Qatari Prime Minister and Foreign Minister Sheikh Hamad ibn Jassem Al-Thani welcomed hoped that this would open a new era in GCC-Iran relations. Countries in the gulf were also weary of foreign intervention, specifically of the United States. They were afraid that they would be "pulled apart" by foreign strategies. That's why they have been trying to strengthen their partnerships and friendships by citing common heritages. They are also set on sticking with the 2010 launch of their monetary union despite the worries of high inflation. Also, they have decided on keeping with the US dollar. Right now, the council's policy is to stick to the dollar although they are having worries because of its steady decline. With such things in their midst, they are rethinking their currency regimes in order to come up with a common position are action regarding all their countries' concerns. To be more precise, their regional currencies have become weaker, more so with the slide of the dollar. This has even aroused discontent among migrant workers who constitute a huge part of their labor forces. An Exploration of the Possible Monetary Union A Gulf monetary union may benefit the member countries by being more prepared for the challenges of globalization. It could help lowed transaction costs and develop cross-border trade and other financial ventures. It could also help the member countries be more prepared for taking risks in investments. Basically, a currency or monetary is feasible. After having more than fifty years of experiencing integration, Gulf countries could probably pull of the currency scheme better that those in Europe did. This is mainly because of the common heritages, linguistic factors, labor markets, cultural aspects and trade practices. Since the member countries have already been emerged in global economic hurdles, it has long shown that they do have a strong and economic union. Over time, a monetary union will surely be viable. However, pulling off such a task is not easy. It would require confident sovereignty boundaries and credible regional agencies or institutions like banks. Most people may ask, why should there be a monetary union Take for example the economic and monetary integration in Europe, it was driven by many factors that followed after the Second World War. If you were to look at it at a political standpoint, Belgium, Germany, Italy, France, Luxembourg and Netherlands took it as a way to show that their futures would be the same and that armed conflict would not be in the picture. Economically, the European union was very much anxious to organize themselves to be a able to prepare for a supposedly international economic environment. Lo and behold, the 1940s gave way for developed countries to take part in trade on the liberal, international stage. It should be important to notice that since the six Gulf states have more in common with each other than the European nations do, border and territory disputes have been really rare. Thus, making it easier to envision a economic and monetary union. And if we were to look at it really closely, a monetary union is really just a response to globalization, which is by the way making more and more nations worry. Since the Gulf states are very much aware of the fact, they have upped their efforts for integration into the global economy by continuously opening up to external trade. The GCC member countries have specifically joined the World Trade Organization, some even being signatories to free trade agreements with the United States. And even with only the sheer purpose of negotiating, Gulf states have surprisingly been very into it. They were very much able to compete in the international market through their large oil and gas reserves. However, if one were to measure their overall impact on the world's GDP, it wouldn't even constitute one percent. But if an economic union really were to happen between the six by 2010, it should be expected that their contribution would double and their share in global exports would increase dramatically. GCC countries should probably remember that domestically, they would gain an upper hand in the common market, specifically a free movement of goods and capital. People would also be more free and encouraged. Realistically, the EU is really ahead of the Gulf countries. But with an economic union (as a prerequisite to a monetary union), they would be able to form a single market which would be stronger than any of their individual markets. Diversity in their economies will also increase. In conclusion, if we were to relate GCC's current situation with the EU, a monetary union would help the Gulf states lower their transaction costs and open up several trade and financial options. And with the kind of progress that the Gulf has been experiencing regionally through their banking and financial sectors, a good foundation has been set up. A collapse in the regional equity market may even be prevented it a fully integrated market were to surface, effectively improving liquidity conditions and regulation in local economies. Bibliography CB chiefs lay out roadmap for monetary union, Kuwait Times Newspaper, viewed 21 August 2008, GCC Monetary Union: Relevance Feasibility and Timing, Middle East Economic Survey, viewed 21 August 2008, Gulf Cooperation Council, Answers.com, viewed 21 August 2008, < http://www.answers.com/topic/cooperation-council-for-the-arab-states-of-the-gulf> Gulf Cooperation Council - GCC, Arabic German Consulting, viewed 21 August 2008, Gulf Cooperation Council, Nation Master, viewed 21 August 2008, Zainab, A. Gulf Cooperation to Launch Common Market in January 2008, Global Research, viewed 21 August 2008, Read More