The United Arab Emirates will only re-embrace the common Gulf currency if conditions change in such a way that it pays host to the Gulf central bank, the incubator of this common currency.

Sovereign par excellence, the UAE decision to withdraw from the monetary union reflects its reproach to other GCC members, who saw in Saudi Arabia’s economic weight and political influence a haven that fends off many threats. For the Kingdom has proven on many occasions its ability and willingness to support other countries. But one must not lose sight of the fact that the UAE plays an important economic role in the region. Still, the situation requires flexibility and prudence in order to stave off the negative repercussions on the GCC, a leading bloc in a vast Arab region stricken by disintegration.

Regardless of the strategy that the GCC member states are likely to implement, and with their adoption of a “common currency,” the Gulf region will stand out as one of the economic blocs that, once ending the currency peg to the gold, has strengthened the homogenous economies of the region to speed up economic growth and ease burdens on citizens.

Throughout history, the unified currency followed the path of globalization, in line with conquests to the east and the west, especially around the Mediterranean basin. The invading country or the prevailing Empire imposed its currency in the conquered territories.

Regional monetary unions widened in scope throughout history, and ended up following a political and economic course during the 19th century, one fortifying the solidarity of different peoples of adjacent countries.

For instance, five European countries joined ranks to set up the Latin monetary union between 1875 and 1927, three other countries formed the Scandinavian monetary union (1873-1914). Belgium and Luxembourg had their own monetary union which lasted from 1922 until 2002 when they both joined the Euro zone.

The Sterling zone encompassed former British colonies, the Escudo zone was set up between Portugal and its colonies overseas, while the Ruble zone ended in 1991. This is not to mention the French franc zone in Africa, and the dollar zone that consisted since 1945 until 1972 of currencies pegged to the dollar as a means to fix the greenback value to gold.

However, currency zones took another path with the adoption of the free exchange principle in 1972, and the use of national currencies as speculative financial instruments, competing with the currencies they are pegged to.

Foreign exchange markets were then dominated by major currencies, such as the dollar, the yen, the sterling and various European currencies. In turn, the competitiveness of world trade stalled as supply and demand entailed daily fluctuations in exchange rates.

The European Union’s path culminated with the common European currency, the Euro, thus ending the era of the ECU. Many regions with no unified currencies often adopt a fixed exchange rate. Therefore, the common monetary zone can be defined as a foreign exchange system designed to protect a given currency. Transfers within would be free and currencies convertible on the basis of exchange rate parity. This while one country manages the foreign exchange reserve, as was the case in the African franc zone.

With the adoption of the Euro, it became possible to determine the reasons behind embracing a common currency, thus assessing the results of such a step. Apparently, financial systems which adhere to their national currencies and monitor their exchange system have no guarantees for sustainable balance, and are often subjected to economic disparity. Also, if a given country pegs its currency to the dollar only, as an anchor of the global financial system, monetary stability is not guaranteed in the long run. For the interests of the State concerned may supersede the public interest. Hence, it would be better to adopt a common currency immune to fluctuations against the greenback and other currencies.

The common currency has thus become a sound vehicle that strengthens any political, economic or monetary integration, eliminating the repercussions of fluctuations in exchange rates. A wider adoption of unified currencies generates profound improvements in monetary relationship within the same region. A unified currency boosts economic activity and fends off unnecessary expenses and useless burdens.

In addition, it promotes development and growth and helps the labour market. It also establishes a sound financial system and stable public budget. This is in addition to stabilizing prices and monetary value, while ensuring low interest rates that encourage investment and achieve competitiveness for national companies.

In order to achieve these gains and others, we hope that the Gulf Cooperation Council will circumvent the inherent difficulties and will lay the foundations for a leading monetary union that would stand out as the precursor of a common Arab currency after the adoption of the Arab Customs Union.