12 March, 2010A single Gulf currency ‘will need development of debt capital markets’
A single Gulf currency will require the development of debt capital markets in the region, Standard Chartered Bank’s chief global economist Dr Gerard Lyons has said.
In his paper ‘Global experiences in economic diversification’, Lyons said the development of debt capital markets would help the Gulf region manage its currency flexibly and fund infrastructure projects.
“While the region is rich in energy, the future unpredictability of energy prices means the region cannot rely on oil and gas receipts as the only source of funds for infrastructure,” he said.
The euro area provides important lessons for the Gulf in terms of a single currency, Lyons said.
“The challenges currently unsettling the euro should not come as a surprise.
In my opinion, if a single currency is to survive, it has to become a political union,” Lyons said.
Within a single currency there is a need for fiscal flexibility, with a central treasury, where richer regions of a currency union are able to help out poorer regions when they experience a setback.
Also, a single currency needs complete labour mobility, allowing people to move in search of employment. Without these necessary shock absorbers – of a central treasury function and a flexible labour market - a currency union will fail. This is the challenge the eurozone faces now.
“It is a lesson for the Gulf, given aspirations of a single currency here,” Lyons said.
A Gulf currency has additional features, he said. A Gulf single currency would require membership of all countries concerned. It would require an independent exchange rate policy, not tied to the dollar.
“Such a tie to the dollar made sense before, as the region sought to tie itself to the credibility of the Fed, but makes less sense now,” Lyons added
Gulf Times
