To Peg.. or Not?
GCC Secretary-General Abdul Rahman Al Attiyah has not specified the type and form the GCC joint currency will take but analysts believe it could initially be linked to the US dollar. “My feeling is that the GCC currency will be pegged to the US dollar in the first stage of the union as it is the official price of oil exports, which account for the bulk of their exports. A large part of their foreign assets is also denominated in dollars,” said Mohammed Al Asumi, a Gulf-based economist. Via Emirates Business
News of how the new “proposed” GCC joint currency will still be pegged to the US dollar has just recently floated. With it came the perpetual debate of whether or not the single currency should still be pegged.
You see, when you hear the term “Single Currency” what instantly comes to mind isn’t exactly a “pegged one” or one that is made up of a basket of currency with the USD accounting for more than 60% of it. But a floating one that uses the combined economic power of the GCC economies to support it.. And obviously, that’s not the case, at least not here.
I completely understand the dollar peg previously taken as a measure by emerging countries aspiring to get the kind of strength and security the dollar offers, but things changed.. we didn’t.. the dollar is sinking like there is no tomorrow, but we still hope for the best.. I guess..
A dollar decline will mean uncontrollable inflation, since we suck at producing ANYTHING in this part of the world, inflation can (and will) get out of hand pretty fast. We are now used to astronomical surges in the prices of goods, services… think real-estate.. think Dubai, Doha and even locally here in Bahrain. What’s worse is that Central Bank’s hands are tied, because of the peg they can’t increase interest rates.. Technically we are just sitting ducks..
On the other hand, our main source of income is USD based oil, it will not really be a very smart move to unpeg against a falling dollar, and have your bread and butter be paid into you cheap.
Not critiquing, just arguing here.. Does holding the peg really outweighs the call for a partial or full abandonment at such times?
What would you do if you had the choice? Then let’s have a proper argument
I don’t think there is much left to choice here Eyad, It is either that we work as an economical block and try to manage our exchange rate in our favor, or keep the peg and take the hits..
Mohammed what are you trying to say?
Keep in mind, dollar doesn’t only offer security. It offers a liquid financial complex (Euro not completely there), a robust legal system (refer to your court cases thrown out the window post), proxy to the most innovate economy in the world (iPod for example)
In addition, its the largest export of a military might that might not be happy (saddam priced oil in Euros two weeks before he was bulldozed).
On the other hand, with the lack of transparency in fiscal policy, employment figures, public debt and deficit ratios, corporate governance in state entities (Dubai and the like) a floating currency won’t last half a day – Greece would look like a walk in the park