The GCC Monetary Union: Some Considerations for the Exchange Rate Regime

IMF Working Papers, April 1, 2003

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The GCC Monetary Union: Some Considerations for the Exchange Rate Regime

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Bibliographic details

• Authors: Behrouz Guerami, S. Nuri Erbas, George T. Abed
• Published: April 1, 2003
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451848816.001

Summary and central comparison

• Compares the dollar peg to a dollar-euro basket peg as alternative exchange rate regimes for the incipient Gulf Cooperation Council (GCC) currency union.
• Quantitative evidence suggests basket peg does not dominate dollar peg for improving external stability.
• Notes that as GCC exports and external financial assets become more diversified, a more flexible exchange policy may be necessary for competitiveness and stability.
• Suggests pegging the prospective common GCC currency to a basket, like the dollar-euro basket, may provide a conservative transitional strategy toward a more flexible exchange rate policy.

Quantitative evidence and findings

• The paper reports that, based on quantitative analysis, a basket peg (dollar-euro) does not dominate a dollar peg in terms of improving external stability.
• Diversification of GCC exports and external financial assets would change the relative advantages of exchange rate regimes and could increase the value of flexibility.

Policy implications and recommendations

• Maintain awareness that the dollar peg currently provides comparable or superior external stability to a dollar-euro basket peg.
• Consider a basket peg (for example, dollar-euro) as a conservative transitional strategy toward a more flexible exchange rate policy.
• Prepare for a shift toward greater exchange rate flexibility as export structures and external asset compositions diversify.

Subject classifications and keywords

• Subject: Conventional peg, Currencies, Exchange rate arrangements, Exchange rate flexibility, Exchange rates, Foreign exchange, Money
• Keywords: basket peg, Conventional peg, Currencies, currency, dollar, dollar peg, euro, Europe, Exchange rate arrangements, Exchange rate flexibility, exchange rate pegging, Exchange rates, export, GCC country, GCC currency, GCC export, GCC monetary union, GCC trade account, oil export, WP

Content in this bundle

• The GCC Monetary Union: Some Considerations for the Exchange Rate Regime - WP/03/66
  • The GCC Monetary Union: Some Considerations for the Exchange Rate Regime - WP/03/66 (Markdown version)
  • The GCC Monetary Union: Some Considerations for the Exchange Rate Regime - WP/03/66 (PDF)