The monetary union is set to smoothen the GCC economic integration, which was outlined in the 1981 economic pact.
Thursday, May 13, 2010
Monetary union to boost GCC markets - Single currency will spur bonds and shares, banker says.
The creation of a landmark Gulf monetary union early this year will attract liquidity into the region's bourses, encourage acquisitions and give rise to a bond market, a top Arab banker has said.
Adnan Ahmed Youssif, Chairman of the Beirut-based Union of Arab Banks (UAB), was commenting on the recent formation of the Gulf Monetary Council (GMC), a precursor to the Middle East's first GCC central bank.
Headquartered in Riyadh, the GCC central bank that groups Saudi Arabia, Kuwait, Qatar and Bahrain will form the nucleus of the long-awaited GCC monetary union, the world's second major currency union after the EU.
Writing in the UAB's monthly magazine, Youssif said a single Gulf currency would eliminate risks related to exchange rates and deepen the concept of a unified market in the region that has already launched a common market and a customs union following several years of negotiations.
"It will also effectively contribute in the development and integration of Gulf financial markets particularly the bond market, supporting the development of stock markets and notably affecting its size, depth and liquidity," he said.
"The unified currency will also increase the capability of GCC corporations to merge with or acquire other corporations in other member countries. This will have positive effects on the macro economy and economic proficiency," he wrote.
Youssif said launching of a single GCC currency, which has yet to be determined by the four union members, would also encourage competitiveness services, banking and financial sectors.
He said this would positively impact the quality of such services and consequently benefit clients in the GCC, by reducing costs and diversifying services. "Such developments could also encourage regional mergers between these corporations to benefit from economies of scale," he said.
Other benefits include enhancing transparency and financial discipline regionally and supporting monetary and financial stability of the Arab Gulf countries.
"All these are supporting factors for attracting more national, regional and international investments to the GCC countries," Youssif said.
Youssif, a Bahraini, described the establishment of the GMC as an "integration step by all standards", adding that this should set the ground for greater Arab economic integration moves.
He said the GMC aims primarily at setting up and preparing the infrastructure required for the establishment of the monetary union, particularly the formation of the central bank and its functions and responsibilities, which include introduction of a single currency.
He said the GMC's duties include enhancing the co-operation between national central banks to set up the required environment for the formation of the Monetary Union, and co-ordinate the monetary measures and national exchange rates policies until the establishment of the GCC Central Bank.
The monetary union, which will be reached through a timetable placed by the Gulf council, will achieve many features that would serve the Gulf economic integration, which was outlined by their 1981 economic pact.
Youssif urged the UAE and Oman to reconsider their decisions to pull out of the GCC monetary union to support the region's full integration.
"We are at a time of applauding the sincere efforts bestowed by Gulf political and economic leaders in mobilising integrational efforts, and urge them to proceed forward with these steps.
"We look forward – as all officials and GCC natives do – to press ahead with the GCC economic integration movement through the joining of Oman and the UAE considering their depth and leverage in the Gulf economy," said the chairman of Union of Arab Banks.
http://www.business24-7.ae/banking-finance/banking/monetary-union-to-boost-gcc-markets-2010-05-13-1.243635
