April 28, 2010
The Unified Monetary Arab System: is it a dream or a reality?
BEIRUT, Sponsored by the Governor of the Central Bank of Lebanon (BDL) Riad Salameh and in partnership with Audi-Saradar Banking Group, the First Protocol’s United Arab Currency Forum addressed the ambitious Unified Monetary Arab System long-term project. Views were so different. Supporters and opponents long argued to convince the audience of the importance of having or rejecting a Unified Monetary Arab System.
In his opening speech, the BDL Governor Riad Salame strongly backed establishing a Unified Monetary Arab System, because it would pioneer Arab trade activities. If achieved and replaced the Euro or the Dollar, he said, the Unified Monetary Arab System would increase the development and a growth potential of Arab banks. Salame also urged supporting efforts made to develop the Arab stock exchange market in order to improve investments and create job opportunities.
Following the BDL Governor, the president of the Association of Banks in Lebanon and the Union of the Arab Bank Joseph Torbey stated that the overall concept of the unified currency is the best to define the “economic complementarity” as it mirrors the integrated economies within a geographical zone known for its culture, its language and its history. However, he said it wasn’t easy to achieve the unified currency, in the present dispersed Arab situation, as obstacles hampering the Arab economic work should be removed. He signaled that approaching the issue of having a Unified Monetary Arab System would start with the activation of a trade, so to be able to prepare a common Arab market and a unified monetary market that would include an Arab Central Bank and a unified currency.
Torbey added that the UMA was not a brief choice, but an economic project set by the interests of Arab countries, in order to get themselves a place among world monetary blocs. He pointed out that such a choice required a complete economic subject that would lead to issuing a unified currency which was their main priority. He stressed that a political will, backed by a strong approval from the businessmen and the public opinion, was indispensable to achieve such a project.
To his part, the president of Arab Chambers State Minister Adnan Kassar stated that the UMA issue was an old issue that was deliberated during the past few decades. He called on establishing was has been achieved until the present day, on the overall Arab level and the regional Gulf level. He said the greater Arab free trade zone (GAFTA) was the main basis to start up with the Arab economic complementarity process.
He hoped the Unified Gulf Currency that would be issued soon to pave the way for the UMA. The global crisis, he said, required a deeper cooperation among the overall Arab financial policies. He added that achieving a UMA would be a pioneer during any broad financial crisis, as it would be protective and promote necessary activity and liquidity control during domestic and foreign crises.
As for former BDL deputy Governor Ghassan Ayache, he stressed that the successful European unified currency experience was a valid reference to secure the criteria of any unified currency process. He added that the bases of the Euro were mainly the stability of prices and the unified criteria relevant to the general financial safety, the long-term interest rates, and the convenience between the national laws, the provisions of the unified currency treaty, the independence of the Central Bank and the prohibition of financing the Government by creating a kind of monetary fund.
He then addressed the challenges facing the UMA. He said there were seven issues to be settled in order to favor the UMA. The first one is to remove differences in Arab economic systems and orientations; to commit to unified fundamental economic criteria regarding the public finance and the inflation; to unify key social and economic legislations; to establish a monetary authority that would be above the national authorities and ruled by an independent Arab Central Bank; to launch a process for the freedom of movement for workers and goods among the Arab countries without restrictions and to bridge the gap of living conditions of Arab populations.
The first one addressed Lebanon’s position amid the UMA. In this regard, BLOM Bank CEO Saad Azhary stated that the key advantage of the UMA was the elimination of exchange rate fluctuations and the decrease of transaction costs resulting from currency exchanges.
However, the UMA may be disadvantageous as it would cancel the monetary independence of Member Countries as any country would not be able anymore to set its own exchange rate independently from the other Member Countries in the event of any shock resulting from asymmetric shocks of Member Countries.
He concluded by enumerating seven requirements to achieve a successful UMA: the weight and the degree of openness of the economy; the freedom of movement of workers; the degree of sectoral diversity in the economies of Member Countries; the resemblance and consistency in their economic structure; the political will, the institutional capacity and the backing financial transfers. Raising the ability of Lebanon to adopt the UMA, he pointed to the openness of the Lebanese economy and its strong ties with its Arab neighborhood, saying Arab trade markets, namely the Gulf ones, had sheltered the excessive Lebanese workforce and helped investment and expansion, namely for the banks that broadened in the Arab economies after reaching the peak in the Lebanese market.
To his part, the BLC Bank Chairman Chadi Karam addressed the limitations to Arab trade, citing mainly the lack of extensive distribution network; insufficient transportation and communication facilities; insufficient Trade Agreements and hurdle-ridden application of existing ones; transactions go through other currencies (mostly the USD) which introduces unwelcome volatility into commercial exchanges; unpredictability of foreign exchange rates movements; increase of the cost of payments and of transaction settlements; in case of crisis and liquidity squeeze, there is no more oil in the machine and there is nothing you can do about it because it is not your currency.
Therefore, he called, instead, on Arab countries to smooth out abrupt changes in trade flows; introduce a welcome steadiness in the trading environment; stabilize pricing mechanisms; facilitate long-term planning and allow reliable investment programming. Thus, altogether, the latter would lead to improve employment levels and to expand consumption (comparable prices, comparable service quality).
On April 12, 2010, the Unified Monetary Arab System Forum was organized by First Protocol at Le Bristol Hotel in Beirut, and it brought together many Lebanese, Arab and foreign Bankers, economists and field experts. Lecturers raised the advantages and disadvantages of following the example of European countries.
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