The GCC Monetary Union - Choice of Exchange Rate Regime

Policy Papers, August 28, 2008

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The GCC Monetary Union - Choice of Exchange Rate Regime

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Bibliographic details

• Published: August 28, 2008
• Series: Policy Papers

Background

• In 2003 the member countries of the Gulf Cooperation Council (GCC) agreed to peg their currencies to the U.S. dollar and to maintain the parity until the establishment of the GCC Monetary Union in 2010.
• A decision on the exchange rate regime for the single GCC currency would be made in 2010.

Key findings and analysis

• The choice of the U.S. dollar peg as the external anchor for monetary policy served the countries of the GCC well for many years in maintaining macroeconomic stability.
• Emerging tensions that call the continued appropriateness of the dollar peg into question include:
  • rising inflationary pressures in the last two to three years,
  • the continuing depreciation of the U.S. dollar against major currencies,
  • differing economic cycles and policy needs relative to the anchor country (the United States).
• These tensions raise questions about whether the peg to the dollar remains appropriate, and therefore whether it would be appropriate for the GCC Monetary Union.

Policy considerations and decision context

• The central policy decision facing the prospective GCC Monetary Union is the choice of an appropriate exchange rate regime for the single currency.
• The 2003 commitment to a dollar peg and the planned decision-point in 2010 frame the policy debate about whether to maintain a dollar anchor, switch to an alternative anchor, or adopt a different regime (e.g., floating).

Subjects covered

• Cooperation Council for the Arab States of the Gulf
• Currency pegs
• Exchange rate policy surveillance
• Exchange rate regimes
• Financial stability
• Floating exchange rates
• Monetary policy
• Monetary unions
• Oil exports

Publication details

• Publication title: The GCC Monetary Union - Choice of Exchange Rate Regime
• Date on page: August 28, 2008

The GCC Monetary Union - Choice of Exchange Rate Regime, (USA: International Monetary Fund, 0) accessed 8/14/2026

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