The GCC Monetary Union: A Compromised Project?

Abstract

Following their initial integration in the early 80s’, the Gulf Cooperation Council (GCC) members made a strategic move in 2001 by planning for the launch of their own common currency in 2010. This paper analyses the likelihood of this project by comparing key critical economic components using a t-test and putting them in correlation with those of the European Union countries prior to the launch of the Euro currency in 1999. Without considering other important exogenous factors implying political, social and religious cohesion, the results show that despite their wealth accumulated over the past four decades and their relative strong economies the GCC members haven’t reached a full state of integration yet. Moreover, a decision regarding the choice of exchange rate regime for their currency is to be made as well. Converging their fiscal policies and reaching consensus over the role of the GCC Central Bank and its location are other key milestones to achieve to date. The recent events in Europe and the political and economic disparities observed there over the past few months may also leave uncertainty about the launch and sustainability of the future GCC Currency Union.

Keywords: monetary union, GCC, European Union, economic crisis, currencies, Euro