Proceedings of 11th International Business and Social Science Research Conference

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Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE, ISBN: 978-1-922069-70-2
Is a Single Currency Agenda Still Feasible in the Gulf
Cooperation Council? A Qualitative Meta-Analysis
Aljadani Abdussalam*, Mear Fead* and Raimi, Lukman*
Delay by the GCC countries to finalise the take-off of its single currency
agenda has generated a mixed reaction in policy and academic circles.
There are optimists and pessimists on different sides of the pendulum. This
paper examines the feasibility of a single currency agenda in the Gulf
Cooperation Council (GCC) in view of the delay in commencement. In
international business literature and mainstream economics, the benefits
and costs of a single currency area are well discussed. The GCC countries,
namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab
Emirates agreed to adopt a single currency shortly after GCC’s formation for
mutually beneficial interests. Subsequently, the take-off date for the single
currency has continued to be postponed for vague economic and political
exigencies. The proposition to be drawn from the development could be that
a single currency agenda is no more feasible in the light of emerging issues
in the Gulf region. To confirm or overrule the proposition, this paper adopts
a qualitative research method for investigation relying on documentary
sources from 2002 to 2014. The sourced data from 25 previous studies
were systematically reviewed and analysed using qualitative meta-analysis.
Results indicate that a single currency agenda is still feasible in the GCC
region, but the pre-conditions have to be substantially met. The delay of a
single currency is a combination of economic and political factors
specifically fear of losing autonomy over monetary and fiscal policy
measures and fear of surrendering sovereignty to supra-national institutions.
The paper concludes with few but far reaching recommendations.
JEL Codes: F, G, L, O
1. Introduction
Economic integration has become a phenomenal issue in the global scene. Impressed
by the benefits of economic integration, the Gulf countries formed several socio-cultural
and economic blocs to strengthen their region, namely: (a) Gulf Cooperation Council
(GCC), (b) League of Arab States (Arab League), (c) Mediterranean Free Trade Area
(MFTA), (d) Arab Maghreb Union (AMU), and (e) Greater Arab Free Trade Area
(GAFTA) (Al-Saud, 1997; Lawson, 2012). The economic bloc that is of concern in this
paper is the GCC. The GCC economic bloc is the most widely discussed and has
prospect of replicating the European Union model in the region. Forced by economic
and political exigencies in the Gulf region, six independent countries namely: Bahrain,
Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates agreed to form the
GCC regional bloc (Patrick (2011), but the actual ratification of the charter was made in
Dhabi on 25th May 1981 (Al-Saud, 1997). Similarly, Pinfari (2009) explains that at the
time of the formation of the GCC there were two political threats that necessitated the
establishment of the GCC.
______________________________________________________________________
*Leicester Business School, Accounting and Finance Faculty of Business & Law, De Montfort University,
The Gateway, LE3 0QQ, Leicester, United Kingdom, Email of lead author: [email protected]
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE, ISBN: 978-1-922069-70-2
The first was fear of the regional ambitions of Iran and Iraq after their dispute on the
Shatt-el-Arab. The second threat was the spread of Iran’s Islamic revolution to the
region. To counter these political threats, the GCC integration charter was swiftly
drafted and ratified by the GCC countries. Therefore, the formation of GCC was
economically and politically motivated, but the economic consideration was much more
pronounced (Patrick, 2011).
Under the 1981 agreement, the member countries were at liberty to maintain control
over their respective national currencies and exchange rates, as well as independent
control over fiscal monetary policy measures. The GCC countries decided to embrace
the idea of a single currency area with a view to transforming the region in line with
contemporary demands for competitiveness and openness. Consequently, at the
second meeting of the highest coordinating organ of GCC held in November 1981 (6
months after the ratification of GCC charter), the member states endorsed an Economic
Agreement on full economic integration in the region which entails having a single
currency (Laabas and Limam, 2002; Aljadani, et al., 2014). As laudable as the goal is, it
has suffered several setbacks linked to a number of factors.
Although the literature is clear on the process for full economic integration; it is a long
and systematic process guided by rules and agreements. There are five stages for full
economic integration, namely: free trade zone, custom union, common market,
economic union and political union (AFRODAD, 2003). The GCC has reached the fourth
stage which stipulates the need for a common monetary policy, single currency,
budgetary and fiscal policies as well as harmonisation of socio-cultural policies that
would boost the integration process (Laabas and Limam, 2002; Patrick, 2011; AlAljadani, 2014). The adoption of a single currency among the GCC countries would
enhance macro-economic and financial stability as well as sustainable economic
development in the region (Khaleej Times, 2011).
Despite the delay for 33 years, the agenda is desirable and necessary based on
economic realities and political exigencies in the Gulf as a whole, the GCC countries
need a single currency to enhance social, financial and economic reforms. The World
Economic Forum (2007) reports that the Gulf countries were spending in excess of US
$1 billion a year (in costs and charges) to support their trade bills. The same report also
mentioned that some Gulf countries are lagging behind in terms of economic and
financial development because of lack of price transparency and other important
rudiments. Even by 2014 GCC countries are still over spending judging by a decrease
in their fiscal surpluses because of rising wage bills, falling oil prices/revenues and an
increase in subsidies for energy. Consequently, domestic consumption outweighed
revenues from exports (IMF, 2014). Therefore, adoption of a single currency with
harmonised monetary policy measures is expected to correct the highlighted
imbalances and facilitate even development among GCC member countries. A single
currency is further expected to promote cooperation and development, especially of
small and medium sized enterprises in the Gulf region where factors of production are
allowed free movement and intra-trade relations enhanced.
Based on the foregoing, this paper examines the feasibility of a single currency agenda
in the GCC region using a qualitative meta-analysis. In specific terms, the paper is
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE, ISBN: 978-1-922069-70-2
seeking an answer to the question: Is a single currency agenda still feasible in the Gulf
Cooperation Council? Apart from the present introduction, the paper is divided into four
sections. Section 1 gives a brief introduction to the GCC and its economic strengths and
weaknesses. Section 2 reviews the literature to gain insights on economic integration,
its stages, costs and benefits and divergent viewpoints on the GCC’s single currency
agenda. Section 3 discusses the methodology and there is a presentation of the
findings. Section 4 concludes with practical research implications and
recommendations.
2. Conceptual Issues and Literature Review
Economic integration is broadly defined as the removal of all obstacles and
discriminatory restrictions to free movement of factors of production among countries
within the same region premised on cooperative agreement (El-Agraa, 2001;
AFRODAD, 2003). However, Patrick (2011) views economic integration as the removal
of all trade impediments among participating countries, and the establishment of
cooperation and coordination among them. According to Raimi and Mobolaji (2008)
economic integration is the coming together of countries for preservation of their
economic and political interests from incursion by other regions, thereby enhancing their
region’s influence relative to others. Alternatively, Mutasa (2003 p.2) defines economic
integration as “the unification of neighbouring states working within a framework to
promote free movement of goods, services and factors of production and to co-ordinate
and harmonize their policies.”
Patrick (2011) explains that at the formation stage in the 1980s, the GCC was
established as an alliance among six Gulf countries on the basis of economic
cooperation and collaboration and not political integration; hence the highest decisionmaking body was named the cooperative council or Majlis Al-Ta’wuun. More
importantly, the charter stipulates that the basis of the relationship is premised on three
tenets, namely:
(a) coordination (Tanseeq), (b) integration (Takamal) and (c)
interdependence (Tarabot). The three tenets are in line with the charter and are
applicable only to economic and financial affairs; commerce, customs and
communications, and education and culture. Economic integration was preferred
because it fosters accelerated development among member states. It also allows for
openness and wider trade relations among member states and their citizens (GCC,
2012). Furthermore, economic integration allows for effective utilisation of surpluses and
deficits among member nations. A labour-abundant nation would explore free
movement for the transfer of its excess labour to a labour-deficient nation, and the same
principle applies to capital-abundant situations (Raimi and Mobolaji, 2008).
The process of economic integration takes a very long time and requires caution; the
AFRODAD Report (2003) identified five stages or taxonomies of economic integration.
These are: free trade zone, custom union, common market, economic union and
political union. The free trade zone is the first stage of economic integration; the stage
allows unhindered trade and free movement of goods and services among member
states by removing trade barriers like taxes and levies. The second stage is custom
union, which allows free trade among members and maintains a common external tariff
and other trade measures with non-member states outside the union. The third stage is
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE, ISBN: 978-1-922069-70-2
common market, where all member states allow ease of movement of capital inflow and
human resource inflow as well as other inputs, but each member country retains power
over their monetary and fiscal policies. The fourth stage of economic integration is the
economic union, which entails embedment of a common monetary policy, single
currency, budgetary and fiscal policies as well as socio-cultural policies required for
smooth integration process. The fifth stage is a political union, which demands total
unification of member nations’ political institutions, governmental organs and
apparatuses under a common central body, which provides direction to all member
nations on all matters.
3. Emerging Evidences from Empirical Studies
In trying to provide answers to the readiness of the GCC countries for a single currency
area several studies have been undertaken with far reaching findings and
recommendations. Laabas and Limam (2002) found that the GCC countries do not have
in place the essential pre-conditions for sound embedment of a currency union (CU).
The two things that appeared to have favoured a common currency area are
commitment to a fixed exchange rate and political will to embrace economic integration.
Other fundamental pre-requisites have not been met. The production structure across
the countries is similar as oil wealth is the mainstay of all the countries. Secondly, there
is very little intra-regional trade because they all produce the same commodities.
Thirdly, there was no convergence of the macroeconomic fundamentals of the GCC
countries and no symmetry in their business cycles as well. For an enduring single
currency area or currency union; they recommended immediate lifting of all restrictions
to allow for free movement of goods and other factors, thereby promoting more intraregional trade; and for convergence of macro-economic fundamentals, there was the
need to create a GCC central bank and a related financial institution (supranational
institution) that would formulate and implement fiscal and monetary policy measures for
the region. Individual countries must surrender national interests for greater regional
interest.
Sturm and Siegfried (2005) assess the 2010 single currency time-table and level of
preparedness for a single currency, and found three key macroeconomic and
institutional issues that required the urgent attention of the GCC. These included (i)
need for a supranational GCC monetary institution to coordinate a single monetary and
exchange rate policy within the monetary union towards the actualization of economic,
monetary and financial stability in the region; (ii) need for fiscal convergence that is well
supported by relevant structures to complement the gains of monetary convergence;
and (iii) need for sound policy to promote structural diversification in GCC economies as
members at present have high structural convergence in terms of products and
services. The implication of the not-too-nice development is that countries with similar
economic structures and tradable goods/patterns are unlikely to cope with asymmetric
shocks, which is the key essence of adopting a single currency area in the first place. In
spite of this warning the economies of GCC after 33 years reflects structural
convergence as evidenced by reliance by all the member countries on oil and gas.
Another study by Abu‐ Qarn and Abu‐ Bader (2008) identified the presence of
structural shocks in the GCC countries. The transitory demand shocks are symmetric,
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE, ISBN: 978-1-922069-70-2
while the permanent supply shocks are asymmetric; a strong indication that the
prerequisites for a monetary union have not been met in the GCC countries. Reviewing
the activities of the GCC countries, Kamar and Naceur (2007) note that GCC countries
have progressed substantially within the framework of economic integration by
achieving a free trade zone in 1981; the introduction of a custom union in 2005 and
official commencement of a single currency had been fixed for 2010. On the strength of
the progress, they examine the impact of money supply, budget deficit, government
consumption and degree of openness in each country on real exchange rate (RER).
The result confirmed that all the factors have a similar impact.
In a similar study, Kim et al. (2012) examine the impacts of external shocks from the
US, EU, Japan, the international oil market and regional shocks to the GCC countries.
Using a quantitative technique, the study found the U.S. dollar and the euro currencies
are more impactful on external shocks in the GCC region and should be used more in
the common basket of currencies in the region. A situational assessment of the gains of
GCC by Khan (2009) revealed that formation of a monetary union had always been the
main goal since 1981. At present substantial progress had been made based on
unrestricted intraregional mobility of all factors of production (labour and capital
included); ongoing harmonisation of financial regulation and the establishment of a
common market in 2008. The study noted that all the convergence criteria required for
sound monetary integration have been met except an exchange rate regime for a single
currency. He cautioned against adoption of US Dollars because of the spill-over effect
of inflation and negative business cycles in the US in recent times.
Similar, an exploratory study by Hebous (2006) examines the main characteristics of
GCC countries in readiness for the introduction of a single currency in 2010. Different
aspects of the structures for readiness were examined ranging from pattern of trade, the
monetary issues, and the fiscal arrangement. The study found that there exists large
similarities among the GCC members, a situation that would help reduce the costs of
introducing a single currency; and secondly, small trade relations take place among
member countries possibly because of similarity in the production structure, low
intraregional trade reduces the economic benefits of a single currency. Using Europe’s
criteria of degree of convergence, the GCC has recorded a substantial level of
convergence.
The benefit of shielding the regional bloc from economic shocks or contagion prevention
is a key reason why countries that are closer form economic unions. To investigate the
impact of such shock or contagion in the GCC, Suliman (2011) examines contagion and
crisis spill overs in the GCC countries from 1960 to 2002. The study found that
contagion from the US stock market crash and the Thai devaluation affected Saudi
Arabia and later triggered a spillover to smaller GCC countries, an indication that
economic integration and single currency would insulate the region from crisis
propagation.
In view of the debates on the viability or otherwise of GCC countries embracing a single
currency area in 2010, Pattanaik (2007) assesses the degree to which the GCC has
met the requirements of an optimum currency area. The study found that firstly, GCC
countries have similar economic structures due to a high degree of oil dependence and
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE, ISBN: 978-1-922069-70-2
somewhat convergent business cycles, and secondly,; they show a high degree of
openness, which is an indication that there is a strong case for a single currency,
centralised monetary policy and a common exchange rate. However, monetary
convergence criteria shows that there are differences in observed yearly inflation rates
across GCC countries, but the inflation differentials converge over time. The
conclusion therefore is that there is a strong case for adopting a common currency in
the GCC region. The benefits include a larger common market, intense competition, and
enhancement of monetary and financial stability in the region which will create a
business environment that is favourable to trade and investment promotion. Similar, a
study by Alturki (2007) examines the feasibility of GCC as an optimum currency area
within the framework of eight OCA perquisites. The study found that the GCC region
has satisfactorily met six out of the nine criteria, these include: openness, similarity of
production structures, and similarity of inflation rates, financial market integration, fiscal
policy coordination, and political power. However, the three yet to be met are factor
mobility, diversification of production and price wage flexibility.
However, Buiter’s (2006) study questions the desirability of monetary union among the
six members of the Gulf Cooperation Council. From the lenses of economics and
political economy, the paper found that there are several benefits ranging from
unrestricted movement of goods, services, financial capital, and human beings as
labour. Apart from mobility, monetary union would forge political integration. The
political argument of integration requires supranational political institutions including a
central bank in place to coordinate the activities of the GCC countries. Political
integration requires surrendering of national sovereignty, which at the moment is elusive
in the GCC countries. The empirical study of Pattanaik (2007) investigates the
closeness of the six Gulf Cooperation Council countries to the process of full economic
integration of a single currency in 2010. The paper found that it is desirable for the
GCC countries to collaborate and have a single currency rather than proliferation of
national currencies, a pre-condition that has not been met.
Further empirical studies like Kandil and Trabelsi (2010) test the desirability and
feasibility of the GCC forming a monetary union with a single currency for the region.
Applying the multivariate structural Vector Autoregression Model (VAR) from 19802006, the paper found that the six GCC countries are yet to meet the pre-condition for a
successful currency union. However, UAE, Saudi Arabia and Qatar show greater
potential for setting up a common currency zone. Secondly, the degree of labour
mobility, trade openness and intra-regional mobility are still below expectation, there is a
need for improved labor mobility, openness, and intra-regional mobility for a sustainable
currency union.
With regards to adopting the US dollar as a peg currency under the single currency area
of the GCC, there has been mixed findings. Jean-Louis et al. (2010) investigate the
suitability of the US dollar as a peg for the GCC’s single currency area, the study found
that for inflation, the GCC countries show synchronised responses to monetary policy
shocks from the US dollar, but for non-oil output growth there is no clear indication that
US monetary policy can be as effective in the GCC countries as it is in US. Building on
their earlier study described above, Jean-Louis et al. (2012) assess the costs of forming
a monetary union among the GCC countries and leveraging on the economic potentials
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE, ISBN: 978-1-922069-70-2
of non-member countries like the US and major European countries such as France,
Germany and Italy. Using a quantitative approach, the paper found that Aggregate
demand shocks are symmetrical across the GCC countries on the one hand, and with
the US alone on the other. Secondly, the Non-oil Aggregate Supply shocks are
asymmetric, but oil Aggregate Supply shocks are mostly symmetrical when the real
price of oil is included. The implication of the study was that it aligns the presumption of
some scholars that GCC countries have common oil shocks; hence they could form a
monetary union with single currency.
An earlier study by Badr-El-Din (2005) investigates the degree of convergence in the
GCC using five tests guiding the United Kingdom’s policy decision on the European
Monetary Union. The paper found elements and types of convergence, but for the future
the GCC countries need to diversify and specialise on the basis of their factor
endowment to wipe out current convergence. Besides, fiscal policy flexibility is absent,
there is limited labour market flexibility and foreign direct investment (FDI) is small, but
the financial market is likely to benefit from the monetary union agenda. Like the
previous empirical studies discussed above, Naser (2008) investigates the effectiveness
of GCC economic integration. Using descriptive and comparative analyses, the paper
measures progression toward monetary union. The paper found that the progression of
the GCC countries towards economic integration is progressive and encouraging, but
leaves room for substantial improvement.
Considering the controversy surrounding the single currency of the GCC countries,
Basher (2013) critiques past efforts in terms of benefits and costs. The paper
established that the creation of a fiscal union is desirable for the monetary union to
work.. Recently, Aloui et al. (2014) investigated if the GCC countries have fulfilled the
basic requirements for creating a monetary union by examining synchronization of real
growth in the six GCC countries with other non-member nations in the Gulf. The paper
found that the real growth rates in the majority of the GCC countries co-move with one
another over the short and medium terms. But in the long-term co-movement of real
growth rates took effect in seven out of the 15 countries paired. Besides, two major
countries in the GCC region, Saudi Arabia and the United Arab Emirates manifest
similar growth cycles compared with other countries.
4. Materials and Methods
The qualitative research method was adopted relying on journal articles from 2002 to
2014. From the search engine, a request for articles on GCC’s single currency agenda
generated over 100 results for journal articles/books. The generated materials were
previewed on the basis of their suitability and relevence to the theme of the research. At
the end of the preveiw, a total of 25 relevent papers representing 40% of the accessed
materials were finally selected (that is a purposive sampling technique was applied).
The method of anlaysis found most appropriate was qualitative meta-analysis.
Qualitative meta-analysis is a technique of reviewing the literature to elicit
evidences/facts and synthesizing them and bringing out new interpretations which
bridges the gap between theory and practice (Denyer and Tranfield, 2006). It is also an
interpretative process of integrating results from many but related qualitative studies
(Walsh and Downe, 2005). In this study all findings from relevant conceptual, theoretical
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE, ISBN: 978-1-922069-70-2
and empirical studies were integrated and re-interpreted to provide support or otherwise
for the present study.
5. Findings from Qualitative Data Analysis
The findings from the qualitative meta-analysis are tabulated in Table 3. From 25
scholarly works reviewed, the emerging findings are that in spite of the odds, the single
currency agenda is still feasible.
SN
1.
2.
3.
4.
5.
5.
7.
8.
9.
10.
11.
12.
13.
14.
15.
Table 3: Evidences on feasibility of a single currency agenda
Author /Year
Findings
Laabas
and GCC countries are not ready because pre-conditions have not been
Limam (2002)
met except commitment to fixed exchange rate and political will.
Cooper (2003)
Full economic integration is delayed because the formation of GCC
was to limit the potential pressure from Iran and the Soviet Union.
Sturm
and Macroeconomic fundamentals do not converge and institutional
Siegfried (2005) frameworks and policies are weak and needed to be developed.
Badr-El-Din
GCC has partially fulfilled the process leading to monetary union. GCC
(2005)
economies still converge.
Hebous (2006). GCC has substantial level of convergence in the quest to adopt a single
currency.
Buiter (2006)
Monetary union is justified based on economic arguments, but suffered
on political arguments.
Rutledge (2006) The study found that a currency union is appropriate for GCC. The
members have not fully implemented the pre-requisites.
Kamar
and
Naceur (2007)
Alturki, (2007)
Pattanaik (2007)
The exchange rate misalignments converge overtime in GCC due to
good coordination. Partial success to be improved upon.
GCC region has satisfactorily met six out of the criteria.
Found that there is a strong case for adopting a common monetary
policy under a common currency in the GCC region.
Abu‐ Qarn and The pre-conditions for a monetary union have not been met.
Abu‐ Bader
(2008)
Naser (2008)
Found that the progression of the GCC countries towards economic
integration is progressive and encouraging.
Khan (2009)
All preconditions for convergence met except exchange rate regime.
Jean
Louis,
Osman
and
Balli, (2010)
Mohanty, et al.,
(2011)
16.
Bley (2011)
17.
Patrick (2011)
18.
Suliman (2011)
Found that for inflation, the GCC countries show synchronised
responses to monetary policy shocks from the US dollars, but for nonoil output growth the response was contrary to US.
Found that at the country level stock markets in all the GCC countries
(except Kuwait) have positive exposures to oil price shocks. But at the
industry level, the responses of industry-specific returns to oil shocks
are positive for only 12 out of 20 industries.
Found evidence of nonlinear dependence for the daily data (which was
rejected), but differences were found across markets using weekly and
monthly data.
Monetary union will be elusive because the ruling families lacks
democratic tradition and fear to surrender to supra-national institutions
Found that economic integration and single currency would insulate the
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE, ISBN: 978-1-922069-70-2
19.
20.
21.
22.
23.
24.
25
Kandil
and
Trabelsi (2010)
Jean-Louis, Balli
and
Osman
(2012)
Arouri and Rault
(2012)
region from crisis propagation.
GCC countries are yet to meet the pre-conditions for a successful
currency union.
GCC countries have common oil shocks, hence could form a monetary
union with single currency.
Found that there is co-integration between oil prices and stock markets
in GCC countries. As oil price increases, the stock prices increase
except in Saudi Arabia.
Kim,
Found that U.S. dollar and European currencies are more impactful on
Hammoudeh
external shocks in the GCC region and should be used more in the
and
Aleisa common basket of currencies in the region.
(2012)
Al-Ajmi
and Found that Random Walk Hypothesis is not applicable to the
Kim,
J.
H. operations of GCC stock markets at both daily and weekly frequencies.
(2012)
Basher (2013)
Aloui et al.,
(2014)
GCC have moved substantially, but required exchange rate regime.
The real growth rates in majority of GCC countries co-move with the
others over the short and medium terms. Only KSA and UAE co-move
in the long-term. Evidence of viability of single currency area.
Source: Authors – Qualitative Meta-Analysis of previous studies on GCC
6. Conclusion/Practical Recommendations
The paper examined the feasibility of a single currency agenda in the GCC region from
the perspectives of previous studies. At the end, the paper found that a single currency
agenda is still feasible in the GCC region; however, the pre-conditions which have not
been met must be quickly addressed. This paper has therefore, enriched the qualitative
meta-analysis by systematically reviewing previous conceptual, empirical and
theoretical studies on GCC’s single currency area and brought out common themes on
the basis of which new interpretations have emerged on the feasibility of a single
currency agenda in the Gulf region. Based on the emerging findings presented above,
the following are the practical recommendations of the study for shaping future research
direction.
i.
For sustained progression towards a single currency area, there is a need for
implementation of free trade area agreement for the free movement of goods and
other factors, thereby promoting more intra-regional trade.
ii.
In order to have better convergence of macro-economic fundamentals, the GCC
countries need to create a central bank like the European Central Bank, which
would formulate and implement monetary policy measures for the region. Other
supra-national institutions for coordination of fiscal policy measures are similarly
necessary.
iii.
Several studies identified high structural convergence in production structure, low
factor mobility and lack of price and wage flexibility in the GCC countries. For
beneficial monetary union, it is suggested that sound policies be formulated and
implemented to promote structural diversification, more factor mobility and price
wage flexibility.
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE, ISBN: 978-1-922069-70-2
iv.
Finally and more importantly, genuine political will is a fundamental pre-condition
for monetary union. This requires that governments of member nations surrender
to supra-national political institutions of the GCC including a central bank to
coordinate their activities.
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