Gulf countries have pursued a single currency since 2001, but the goal has proven elusive. A deadline to launch the Gulf Cooperation Council monetary union was set for this year. That was scuttled after the United Arab Emirates, the Gulf's second-largest economy, pulled out in 2009 over concerns about Saudi Arabia dominating the monetary union. The recent sovereign debt crisis affecting the eurozone has only provided more reason for skeptics to question whether the GCC monetary union will actually launch. But Bahrain Central Bank Governor Rasheed M. Al Maraj remains firm in the belief that a single Gulf currency will become a reality. Head of the Central Bank of Bahrain since 2005, Al Maraj was elected this year as the deputy chairman of the GCC monetary council, the precursor to a regional central bank. He has experience in the public and private sectors — his previous government appointments in Bahrain include senior positions within the ministries of finance and transportation, and before his current role, Al Maraj was the general manager and chief executive officer of the Arab Petroleum Investments Corporation. He is a board member of the Economic Development Board and the National Oil and Gas Authority, and is a member of the Board of Trustees of the Oxford Institute for Energy Studies. In an e-mail interview with Arabic Knowledge at Wharton, Al Maraj said it would be easier to implement a common currency in the GCC and avoid the Euro's problems. But the process of forming such a union cannot be rushed, he said, as the task involves establishing proper economic structure and rules beforehand to prevent a similar crisis.
An edited transcript of the conversation follows.
Arabic Knowledge at Wharton: Your Excellency, it has been said that the Gulf Cooperation Council (GCC) monetary union is still a goal, but the region needs a currency with sound fundamentals. What are some of the factors that you believe must exist in order for such a currency to meet that definition?
Rasheed M. Al Maraj: We need a monetary union that will support the maturing process of our economies, as we all seek to diversify away from oil, in an integrated fashion. In order for this to be achieved the right structure and rules must be clearly in place from the outset, and all of the members must take equal responsibility for its success. As a region we have benefited from oil revenues to put in place the right infrastructure for growth, and with a young, growing population we also have an opportunity to make the GCC a global economic powerhouse.
Arabic Knowledge at Wharton: What are the benefits to having a monetary union in the GCC? Do they outweigh the risks of such a union, which we are seeing now in the eurozone?
Al Maraj: The benefits of having a single trading zone have already been illustrated by the economic growth enjoyed by the countries of the GCC since this was put in place — the GCC is now a US$1 trillion economy and is predicted to double to US$2 trillion by 2020. A single currency will help to bolster inter-regional trade still further and to encourage greater integration of our economies. Perhaps most importantly, the combined impact of the GCC economies on the global stage would be increased.
Arabic Knowledge at Wharton: Would there be any the differences between the eurozone and the proposed GCC monetary union?
Al Maraj: The GCC economies are much more similar to each other than those of the eurozone. For example, the current tension within the eurozone arises from the fact that some members are net capital importers while others are net capital exporters; some have run large trade surpluses, while others have run deficits; some have traditionally run balanced government budgets while others have operated with long-term government deficits. By contrast, all of the GCC economies are net capital exporters, with a positive balance of trade and government surpluses. Only in recent years have the GCC countries run budget deficits as a counter-cyclical policy. In the medium term, budgets will return to balance. These similarities between the GCC economies mean that it will be easier to implement a common monetary policy.
Arabic Knowledge at Wharton: What are the issues that GCC countries need to address in order to avoid a similar crisis in their proposed monetary union?
Al Maraj: We need much clearer central policies for addressing issues and a mechanism for taking swift action when issues arise. But I think many of the issues the euro is facing now don't apply to the region for reasons that I explained in my previous answer.
Arabic Knowledge at Wharton: The GCC monetary union was proposed in 2001, and was to be ready this year, but now it has been pushed back tentatively to 2015. Why has it been delayed to this extent?
Al Maraj: The economies of the GCC countries have performed relatively well during the recent global financial crisis, but it has also inevitably illustrated potential issues and pitfalls and so it is clearly prudent to carry out the exercise correctly rather than quickly.
Arabic Knowledge at Wharton: The GCC sought technical assistance from the European Union (EU) on plans to create its monetary union. With the eurozone crisis, has that advice been thrown into doubt?
Al Maraj: We have greatly benefited from the technical assistance provided by the EU and it has helped us to focus our plans. However, we do not intend merely to copy an existing monetary union. We need one that is adapted to our specific needs and circumstances. As far as the euro itself is concerned, I'm sure that its underlying benefits will come through in due course, and the lessons learnt from the recent episode will make it even stronger over the longer term.
Arabic Knowledge at Wharton: How do you evaluate criticism that due to Saudi Arabia's size as the largest GCC member, it would dominate policy in the monetary union as a result?
Al Maraj: All of us will have a part to play. Bahrain already has an extremely strong economic relationship with Saudi Arabia and it is one that involves input from both sides.
Arabic Knowledge at Wharton: Conversely, would Saudi Arabia, as the largest economy, be willing to accept the role of 'caretaker' in such a union if one of its members fell into economic difficulty, as Germany has done in the EU? Would Bahrain be expected to shoulder a similar responsibility?
Al Maraj: I can't comment on Saudi Arabia's behalf, but as I said before, what is more important is having the right mechanisms and correct fundamentals in place to address the issues before such a response is required.
Arabic Knowledge at Wharton: How do you respond to criticism that with the four current members — Saudi Arabia, Bahrain, Qatar and Kuwait — such a union does not make sense, that it would be the three smaller economies adopting Saudi Arabian currency?
Al Maraj: Clearly the Saudi economy is going to play a major role, whether four or six economies are involved, but each of us will bring something to the table. In Bahrain's case we are the most established financial centre in the region, and have extremely strong international relations with the U.S., Europe and with Japan and Asia.
Arabic Knowledge at Wharton: Is there a good chance that because of regional political differences, the GCC monetary union would always be fragile — and a sign of that was the GCC's second-largest economy, the UAE, pulling out of the monetary union because of the decision to base the union's bank in Saudi Arabia?
Al Maraj: I think it is the responsibility of the supporters of the monetary union to demonstrate the benefits of the single currency to the other GCC countries, and I believe that in due course this will be achieved and we'll see a consensus around the subject.
Arabic Knowledge at Wharton: GCC Secretary-General Abdulrahman Al Attiya said that the UAE and Oman haven't ruled out joining the monetary union, despite statements from both countries that they were not reconsidering. Is bringing the UAE and Oman into the monetary union still a goal? What would need to be done in order to make it an attractive option for those countries?
Al Maraj: Of course it remains a goal, and we hope that in due course both countries can join the monetary union.
Arabic Knowledge at Wharton: Saudi Arabia has maintained its currency peg to the dollar. Would the dollar peg remain for the 'Khaleeji' or would a basket of currencies, with the US dollar being the dominant currency, be an option for the proposed GCC currency?
Al Maraj: The dollar peg has clearly served the region well. The monetary policy of the GCC central bank is still to be decided, and it is a matter that we will need to consider in the coming years.
