PLAGIARISM FREE WRITING SERVICE
We accept
MONEY BACK GUARANTEE
100%
QUALITY

Unifying The Currency IN THE Gcc Countries Economics Essay

This paper talks about the replacement as the long term of the Gulf Assistance Council (GCC) currencies with one common money. The countries that form regular membership of the GCC are, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arabs Emirates (Fasano and Iqbal, 2003). The formation of monetary union includes the creation of new multinational currency, like the euro, and its own substitution of participants' own currency (Kenen& Meade, 2008). Via an contract that was concluded in 1985, the GCC was set up. The motivation for the formation of the GCC was a desire to have common market, have similar goal as an area and unified political system given that they all profess an islamic faith. The unification of the currencies is expected to come with lots of advantages alternatively than disadvantages. A number of the advantages include, superior economic progress, the economies around this areas are able to blend well and these countries being abundant with oil, there exists need to improve those non-oil producing aspect of the economy (Emerson, 1992). However, it is important to notice that, currency unification is not really the only factor that may be put in location to realise greater local economic expansion or increase.

To attain completely economic growth, all other aspects should be put in spot to ensure that it's successful. The other factors that might need to be addressed include, relative political stableness, common exchange rate for the regional currencies and developement of great regulations for business to flourish. It's important to possess common exchange rate so as to get value for any currencies. Hence, it is of great importance to comprehend both attributes of the coin or expert and cons before rushing involved with it. This paper will also be comparing the normal GCC currencies unification process to the the one that was earlier performed by europe. Another assessment will be made with Kuwait in regards to currency unification. This should cover long-term benefits and drawbacks.

LITERATURE REVIEW

The GCC member countries have their own individual currencies. Within this paper, we live addressing the problem of producing one common currency for all your member countries. This will come with benefits and drawbacks. It is important to critically analyse the advantages and the cons to be able to make the best decision if it is worth it or not. Furthermore, GCC countries have slowly but surely taken a number of steps towards putting into action market-based monetary policy, though direct instruments (such as interest levels and credit ceilings) continue steadily to play a role in a few of these countries (Fasano & Iqbal, 2003)

Pros and Cons of common currency

The common money adoption by the GCC should come with it advantages and disadvantages. The major advantage that will be realised is the cut of costs that are involved in exchange from one money to the other within the spot. As a result, the GCC countries will realize an improved ecnomic growth. This would be a major benefit for the non-oil economies. This would therefore mean that each member country benefit from common rate (Emerson, 1992). The main disadvantage however is the fact any problem that will be realised in a single country may be relicated in another. This is because countries won't be using individual exchange rate plans. There appears to be a balance between your benefits and drawbacks.

As mention in the earlier, the main benefit that the GCC countries will realise from having one money is the clipping of the transaction costs when changing one money to the other within the spot (Fasano and Iqbal, 2003). This is because the average person currencies don't have similar exchange rate. When investing foreign currency, individuals will eventually lose money in the procedure. Another way that money is through forex commissions. For countries that operate from more than one country, it will get rid of the accounting costs. Time put in at the boarders making obligations may also be greatly reduced. Any doubt about biliteral exchange rates will be removed fully. At the moment, the rates that are being used derive from the countries relation to the dollar. The dollars rates may change more often than once and this may cause a bigger problem. This would normally cause doubt.

It is a spot of worth to notice that eradication of the local costs and uncertainties will make a difference for economic progress within the GCC (Fasano and Iqbal, 2003). In essence, this integration costs are like fees to the individuals and businesses. Removal of this fees will ensure that business techniques are made affordable rather than an encumbrance to the firms operating in the region. This removal will also enhance the developement of its non-oil market. From the starting point, this is the main goal of GCC. Anothe advantages that it may help out with instilling self-discipline to the economic plans especially to countries that don't have a well balanced exchange rate.

Loss of independence of economic and exchange rate may be the largest blow that the GCC member countries may realise (Fasano and Iqbal, 2003). Exchanged rates are measured against one another, interest rates based on foreign rates of interest any extra cash in blood circulation will lead to deficit in balance of repayment. Exchange rates play an important role throughout the market as a stabilizer. Disregard of the instrument will normally lead to job loss. This cost is however included to an stretch that effects to the countries in your community tend to be balanced concerning expect common response. This would normally happen in scenarios where prices and wages are static or in situations where capital and labour are similar accross the GCC countries. Insurance plan autonomy will be a problem in economies that rely on revenues. A good example would be countries that have poor duty system.

Factors to consider while creating common currency

In determining the country's readiness to join the common currency, it's important to consider a amount of factors. The factor are related with secure exchange rates and money unification that is attractive. As to the regards to existing nationwide currencies, benefits of single currency would necessitate in each country a change in device of bank account (Emerson, 1992) These factors are:

Openness: whenever a country is completely dependant on international trade, such a country is more likely to be more right to be afflicted by any fluctuation in the exchange rates. This is normally because its goods are tradable. In such instances, any fluctuation in trade rate, will normally produce to a big change in expense of the products. This would therefore imply exchange rate is not a highly effective tool of improving competitiveness. Hence, it is easier for an inferior economy to enter into currency union easier that larger economy.

Factor flexibility: in case there is instability, if several country are highly integrated in the perspective that labour and capital can certainly move across within the member country, exchange rate may not be a competent corrective tool to be used to address the problem as it is. Factor ability to move in this case will play a vital role in cases like this as the exchange rate would have enjoyed in those other economies that rely upon exchange rate. Factor ability to move would then play a crucial role in mitigating the trouble. It is therefore important that factors that experience higher flexibility factor enter money union.

Degree of commodity diversification: an overall economy that is varied has better protection against any market shocks hence not so reliant on exchange rate as factor to reduce the impact of the distress. Therefore, it is clear that countries that have varied products are better place to get into currency unions.

Simillarity of development structure: when countries have simmilar creation structure they are more likely to have simmilarv shocks. The exchange rate in this case may not be utilized as a significant factor in an attempt to corect the situation. This would make such countries better placed to form currency unions. When for example the country is producing wheat, while others are producing simillar crops, it easier to allow them to relate, in comparison to those that do not have simillar production set ups.

Price and income versatility: price and income flexibility don't need exchange rate to be changed in a case of impact. Those countries that have versatile prices and salary will usually choose to have common money to clear the problems outstanding. If in one country the wages are high and in another the wages are extremely low, it becomes very hard to synchronise them. Someone from one country school be in a position form to move from her country to some other.

Simillarity of inflation rates: similarity of fluctuation rates is an indication of financial structures and guidelines. If countries want to organize their economic activities, it might be naccesary to allow them to get in to a agreement so as to attain common currency. This would make it easier for coordination of the financial activities.

Degree of coverage integration: similarity of guidelines with countries may point the need for an economical integration. Countries that don't have any similarity will have a tendency to be less thinking about forming economical integration in relation to those which have closer policies. It might be easier for them to join hands and interact.

Political factors: politics takes on an important role in guaranteeing sucess in the quality of countries to get similar currency. Economic factors are likely involved in currency union, but experience demonstrates political factors play a major role in attainment of the same. Without political will, nothing of substance will be achieved.

Source: Emerson (1992)

EUROPEAN UNION

In an attempt to look into GCC desire to truly have a common currency, assessment with other success stories is vital. In this regard, it is worth looking at EU as a model to study from. Baldwin, Bertola and Seabright (2003) declares that in try to unite the Europe, a whole lot has been achieved. This has to the formation of a single currency across European countries. The creation of the Eurpean Union has come with so many advantages to the citizens of the countries. However sometimes, the advantages aren't known by many. The creation of common money is welcomed by many though some people are still unhappy about it. Critics believe the single currency is in charge of increasing inflation and that it has caused the current economic climate to weaken (Emerson, 1992). However, closer review of the marketplaces signify that inflation hasn't occurred in the region and since much as there are poor economies, strong economies can be found within the same area. The primary advantages liked by the people is the easy with which individuals easily move within the euro region. The other advantages accrued is the reduced inflation rates. Citizens take up this low rates inform of home loans. Which means that if one acquired a debt, it is cheaper to service it (Emerson, 1992). E-commerce has been another area that citizens have had the opportunity to enjoy. This is because, they could shop over the european area without fearing that exchange rates may change hence impacting on them negatively. Really the only problem that the people may face is the price tag on transferring money over the member areas.

One other success factor of the European Monetary Union (EMU) is the fact that it prevents warfare (Baldwin et al. , 2003). From the start, EMU has been a political project. Using its founding, there's been relative tranquility with the region. It is common knowledge that when countries trade with each other, it is normally difficult for these to attack each other, this would then let serenity to prevail. If EMU brings trade, it therefore means, it will bring more understanding in your community. One of the primary good thing about EMU is increased transparency and efficiency of financial markets: the costs and earnings of financial tools dominated in the same money can can indicate their future payoffs, rather than market participants' valuation of exchange rate changes (Baldwin et al. , 2003)

The deal cost will be wholly removed. A good example is where a UK firm needs to trade with Europen People. This implies that they would have to buy foreign currency before they can buy goods. But also for businesses that operate the EU it is very cheap to them because the would not have to incur any cost when change currencies.

Price differentials are normally highlighted by one money (Emerson, 1992). Proper improvements and focus on competition, will at the end of the day ensure that the economy is more efficient and prices of commodities are gradually helped bring down. This can be aimed at concluding market discrimination. The EMU will try to ensure that there is price stability, which may be achieved by not politicking the Western central Bank or investment company (Baldwin et al. , 2003).

In introduction of free trade, the European Union is defined to benefit totally. In situations whereby the EU desires to form business partnerships with other trading blocks, it would be excellent for and of benefits to european union countries, because they have higher bargaining ability.

UAE's RESISTANCE

The UAE does not seem to totally support the complete idea of currency unification. That is believed to be because of GCC's to move the central loan provider in Saudi Arabia and not UAE (Fasano and Iqbal, 2003). This is because in 2004, UAE was the first country that undertook to ask to get permission to number the central loan company. At most, GCC does not have any institutions in UAE.

Close scrutiny will also reveal that the UAE did not have faith in the whole union. They thought that by implementing common currency, their economies can simply be experienced by other get-togethers. This is because it could be collectively assesed. With such mistrust, it normally very difficult to create a formidable union. It would require the treatment of GCC, to make things known, otherwise, nothing would be achieved. Inability to clarify things would be like chasing a outrageous goose. It would remain a piped wish.

METHODOLOGY

The research on the money union among GCC claims is like some other job. This therefore means that a methodoly has to be developed to properly carry out the research for better results. Mothodologies for tasks have to be highly relevant to the project. Incorrect choice of methodology would lead to inability. Failure to place method set up will normally bring about poor deliverables by the end of task. All projects require the next:

Planning

Organization

Implementation

Assesment and following up.

Figure (1): job management cycle

Project initiation is the stage which aims are areas to be covered are recognized by studying the existing situation. At this time, the assumptions of the job would be outline as both benefits and drawbacks every one involved in the project should clearly understand their role in the process. Organisation perspective is important to be developed well beforehand before any changes that might occur. Without a clear vision, it could become very difficult for the organisation to realize its goals as a result of numerous problems associated with them. This may be because of lack of clear eye-sight from the starting point. With feasibility of the project asserted, it would then require that the organization leader is important in making happen. Feasibility study will be used to ascertain if the projects would have any economical sense in them. Those tasks that aren't possible are better overlooked of the range. Seeking them would end up being expensive for the company.

Planing and company is the second stage. At this point, action programs and activities to be completed by each members are clearly laid out. It is of importance to plan well in advance to avert any issue. Failure to plan well will eventually cause a turmoil in the later stages because by the end of your day, goals aren't met. People executing this may interact as team, or as individual, depending on what's necessary at the moment. More requirements are recognized, this will assist in preparation for the implementation level. Procudures and plans engaged should be researched and endorsed before progressing to another stage. It is important that stockholders are actively involved at every level. Ignoring all stockholders could make the task to be denounced when it is finally delivered.

The implementation stage involves real execution of activities that were outlined in the last stages. Resources that were reserve are then fond of ensuring the required goals are obtained by any means. The groups would normally work together to gain common goals. Implemetation is done relating to predetermined plan that has been setup by the organisers. Inability to implement this program well would lead to failing in many aspects.

After the conclusion of the execution stage, it is important to review the results. This would be achieved to find out if what has been developed is consistent with what was desired prior to the start of the project. They can be intended to find out if there are any variants. It is important to ensure that the targets are fulfilled. Whenever risk is discovered, something must be done to avert the challenge.

After the project is accepted by the commissioning authority, it might be necessary to release all the resources engaged. All those included are thanked because of their valuable experience. Periodically the initial goals may not be captured, these means that the entire process should be done altogether or correct those areas which were not done right. After ensuring that all is performed, it would be smart to stop the procedure.

DATA

The data below can be used to show the partnership between many factors in the GCC market. The interrelation among the list of factors is important in making certain those factors are placed in spot to realise the goals required. This factors include:

Openness: the GCC countries are believed to be the most open up countries in the complete arab region. In essence, openness is created by looking at the ration of trade over gross home product (GDP). In stand 1 below, we try to supply the openness of GCC nations.

Figure 2: Benefits of Monetary Union in an Open Overall economy from Emerson, M. (1992, p. 107)

Factor flexibility: the flexibility to go capital and individual movement across the GCC countries has been allowed in an agreement of the GCC countries. The free movement all fits in place with the freedom to conduct economical activities within the countries without any constraints available. However with all this in place, there are still restrictions on the activities that can be done by the nationals of the GCC. The regulation in some institutions are not very similar. This posses an extremely big task.

Degree of product diversification: there can be an try out by the GCC countries to diversify their economies, but this continues to be not successful, because they're still very determined by oil. The essential oil contributes about 80 % the GCC current economic climate. Table 2 provides export indices (World Bank or investment company, 2000).

Table 2: Export Awareness Indices for GCC Countries

In the non-oil sector, activities are very slow, nor attract so much attention. Because of much dependency on essential oil, these economies have always been subjects of fluctuation of world petrol prices.

Policy integration: the inflation rates in the GCC countries are not very correlated despite the fact they have financial, exchange rate and fiscal policies. The modifications in inflation may be created by the various factors that are accountable for creation of inflation. Factors that are responsible for inflation are, supply and needs of commodities (goods and services). With common money, the GCC countries plan to tolerate market shocks using their simillar policies.

Other factors: the GCC leaders have a solid commitment amongst those to ensure that their goal is achieved. This GCC countries have a great deal in common. This can be politically, socially and in terms of social structures. It is an added benefits to the GCC member says because each is muslim nations. There are economic differences among the list of GCC countries.

Source: Fasano and Iqbal, 2003

This however will not stop the market leaders to forge collectively and plan to have an financial integration. This being muslim state governments, there are some practices that can impede the realisation of the union. People in these areas have very close family ties and wouldn't normally want to move far away off their homes.

CONCLUSSION

In final result, it not very clear when the normal market would start operation. There were people who said that it might be operational this year 2010, but it is yet to be realised. There are however some countries which have been sceptical about the complete union. GCC must move round member countries seeking convince the individuals. They also needs to make them appreciate its importance. You will discover factors that need to be attended to before this aspiration can be finally realised. Factor freedom is an aspect that cannot be just ignored. It would normally require that people are able to move from one country to another without getting any issue while in transit. The regulations are also not totally put in destination to ensure that the goals are realised. Each one of these may well not be realised if political will is not there. It is therefore important tat the politics rulers in this ares support this to be able to attain monetary union soonest.

More than 7 000 students trust us to do their work
90% of customers place more than 5 orders with us
Special price $5 /page
PLACE AN ORDER
Check the price
for your assignment
FREE