7th APRIL 2015 - Vol.XXXVIII No.018

Why a single currency would attract investors

The GCC should accelerate its efforts to introduce a single currency. Sceptics may draw parallels to what is happening to the euro, which may further delay the process, especially in a region where implementation of almost anything has never been on time.

People need to realise that Gulf countries are different from the euro zone ones. In addition to commonalities in religious, cultural and social preferences, the $1 trillion bloc has a common denominator driving its individual economies.

This is in sharp contrast with the EU members where there were differences in their individual GDP components, wide disparities in savings rates and muddled thinking amongst politicians - further complicated by cultural diversity.

The GCC economies are dominated by hydrocarbon exports, government involvement in business, identical labour statistics, a combined surplus, uniform monetary and fiscal policies, and relatively high savings rates.

In addition, its individual currencies being on fixed rates owing to the common referencing and/or pegging to the dollar may aid in a smoother transition.

The world over governments' primary objectives include high growth and low unemployment, which is a function of structural factors, effects of business cycles, flexibility of labour markets and the investment climate.

An independent look at each of these factors draws commonalities across the GCC and argues for early introduction of a single currency.

Whilst there could be some inflationary adjustments, benefits in terms of reduced transaction costs and a common macro-economic policy would translate into a stronger and stable currency. This would lead to a more conducive investment climate and stable long-term growth in the region.

Krishnan S Iyer

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