The Gulf Dinar Essay

Custom Student Mr. Teacher ENG 1001-04 21 September 2016

The Gulf Dinar

When the European Monetary Union announced its intention to introduce the unified currency, the Euro, there were mixed reactions by the European nation countries. Several speculators claimed that the move was to benefit the participants in several ways. They would enjoy economic benefits which include low interest rates and general currency stability. However, the benefits were said to be varied depending on the countries. It was predicted that the countries would benefit depending on the economy of the country. Therefore, all the countries were expected to be economically stable in terms of their resources.

The Euro was introduced, and it is still in use up to date (BBC, 1998). The Arab nations have decided to follow suit through the introduction of the gulf or the Khaleeji Dinar. This essay will discuss the purposes of the Gulf Dinar and the effects it has on the Middle East and the world at large. In 2009, four countries decided to have their own currency in a bid to launch a monetary union. These four countries were all oil producers. Their plan was to ensure that the new currency was to run in tandem with all the other national notes and coins which were then in circulation.

The scholars in economics stated that the Gulf Dinar “was to be issued by the Gulf Central bank and set at SR10, nearly $2. 66” (Saudi Gazette, 2009). A renowned Economics professor from King Abdul Aziz University which is based at the Saudi Red Sea Port in Jeddah, made speculations on the new currency. He stated that the Gulf Dinar would be circulated along with all the currencies that were in existence in the entire Gulf Cooperation Council (Saudi Gazette, 2009). The two currencies which were present would first circulate among the individuals and the banks for a period of two years so that the public acclimatizes to the new currency.

After a period of five years, the national currencies would then be withdrawn slowly so that no impact would be felt. The GCC officials stated that the new currency “would remain pegged to the dollar until a new currency and peg was decided’ (Saudi Gazette, 2009). The name ‘Khaleeji’ Naming the new currency ‘Khaleeji’ was not something which made the Finance Ministry contented. According to the Ministry’s officials, they thought that the name was too general for the currency. The name was seen as inappropriate because it would be rated as the second major monetary union internationally, after the Euro.

After several deliberations and arguments, the officials settled on the name ‘Gulf Dinar’ which was more specific (Trade Arabia, 2010). Withdrawal of United Arab Emirates and Oman Oman was not in agreement with the GCC officials, claiming that it was not adequately prepared for the new currency. The United Arab Emirates (UAE) also quit the plan after sometime in 2007. The reason of this action was because they did not agree with the decision that the Gulf Cooperation Council (GCC) had made, which was choosing Riyadh as the main location of the Gulf Central Bank. The UAE wanted to host the Central Bank.

Additionally, it insisted that the national currencies had to be kept in circulation (Saudi Gazette, 2009). The Central bank in Riyadh The GCC officials stated that the capital of Saudi Arabia, Riyadh, would be the host of the Central Bank, which would be the first of its kind. This was seen as a bold step, as it was a sign of pushing towards a larger integration as far as economics were concerned. The plans of the GCC by that time were to ratify the charters in association with the monetary council. These would lead to the establishment of a timetable for the established currency.

Saudi was found as the best venue because it is the first world oil producer with a Gross Domestic Product of four hundred and seventy billion. It is also a leading member of all the countries which export petroleum (Arab News, 2009). Additionally, it is the only Arab nation of the ‘Group of twenty nations’ (Arab News, 2009). Saudi was also stated as a country which had the ability of demonstrating ‘a solid financial status without any excesses’ (Arab News, 2009), unlike the other Arabic regions. It was also a good venue of the Central bank, as it would bring a unification of the whole of GCC.

Now that the Central Bank was to be established in Saudi, the country had a lot to do. It was to ensure that it always maintained the momentum, and worked hard to always be at the top. This means that there would be unification in the region, and the harmonization of customs (Arab News, 2009). The Khaleeji Dinar: The first attempt The introduction of the Khaleeji Dinar (KD) traces back to 2007, when there were so many challenges that faced the whole process. It all began with the withdrawal of Oman from the plan. Afterwards, the Kuwait Dinar was revalued (Per Your Request, 2007).

There were requirements for the countries to utilize the Gulf Dinar. The countries to use the Gulf Dinar had to be economically stable so that there would be less chances of recession. Six countries, including Oman and UAE met these requirements. Qatar qualified as it is rated first as far as supply of liquefied gas is concerned. Additionally, it ranked third in natural gases supply globally (Dinar Speculation, 2010). In the oil producing countries, Saudi Arabia was considered as the largest, and Kuwait was selected as it had a capacity of producing over one hundred and four billion oil barrels annually.

Even though Bahrain had little amounts of oil, it was still considered by the GCC officials as one of the countries which would benefit form the new currency. This is because it led in the banking sector, retail, heavy industries and tourism in the region (Dinar Speculation, 2010). Purpose of the Gulf Dinar When the GCC officials decided to come up with a common currency in the Arab and Islamic nations, they had calculated and realized that it would benefit the members of the union in several ways. Therefore, they had their purposes when introducing the currency, both in 2007 when it collapsed, and also in 2010.

Indeed, its use will be a benefit to all people in the union (Vivekanand, 2010). The introduction of the Gulf Dinar will not only be the fact that there will be the introduction of one currency. This is in relation to an economic bloc which is known to have a GDP of three hundred and eighty eight billion, and is in charge of over forty five percent of the oil reserves internationally. There are more importances linked to it. Therefore, it would have met the goals and the purposes of the GCC once the currency starts being used. One purpose of the currency would be to elevate the levels of trade in all regions in the world (Vivekanand, 2010).

The Gulf Dinar would also benefit the Muslim and the Arab nations. This is because these countries will have the ability of pegging their currencies, which will serve as an option of the American dollar (Vivekanand, 2010). There will be a series of political and economic benefits which will be introduced to a country with the launch of the Gulf Dinar. This is if the GCC will legislate and implement the necessary changes and policies of preparation for the GCC governments. With the new currency in place, the countries will be required to become more accountable of their finances than before.

Transparent and regular economic data will be published every year so as to create the forecasts (Vivekanand, 2010). Intraregional trade would be the other purpose of launching the new currency. Once introduce their intraregional trade levels would sky-rocket. This is because the new currency would eliminate all transactions costs which will come along, and also, will allow the direct comparison of prices and costs. This will enhance competition and lead to the general efficiency in economics (Vivekanand, 2010). The GCC states realized that when they rely solely on the U. S.

Dollar, they will always be affected by any form of recession that occurs in the world. This will mean that all the interest rates will be stated by the US Federal Reserve. As a result, the GCC states have been forced to base its monetary policies in relation to the economic conditions of the US. When the prices of oil are high, the Federal Reserve of the US ensures that it has lowered all interest rates so that there are no economic downturns as a result of the high input costs. At the same time, liquidity occurs in large numbers when there are high prices in the GCC economies.

Combination of the two situations normally leads to asset price bubbles. Therefore the decision of the GCC to introduce the Gold Dinar so as to peg on the Euro would mean that these states will not have to rely on the dollar (Vivekanand, 2010). The levels of portfolio investments are expected to increase. Additionally, the regional private wealth retention levels are also expected to increase. The Gulf Dinar will become the strongest currency in the Muslim and Arab nations. This is because these nations will choose to use this currency as another option instead of the U. S. Dollar.

The region will also have substantial seignior age revenues (Vivekanand, 2010). The Gulf Dinar will also bring several benefits because, once the Arab and Islamic countries use it as their sole currency, they would term it as a reserve currency which would satisfy their political and religious reasons. These nations will benefit as they would refer to it as an anchorage and reserve currency. Once introduced, the nations will be able to shift from pegging to the Euro, and instead, peg to the dollar (Vivekanand, 2010). There has always been trade with Asian and Euro Zone countries.

The introduction of the Gulf Dinar will continue to enhance the trade, and therefore the exchange rate which exists will continue (Vivekanand, 2010). The euro has been the most important currency union. The countries in the European Union have enjoyed the benefits associated with having a common currency. As a result of using the currency, their economy has stabilized, and there have been very few incidences of recession. The euro has continued to be strong, as it had instilled a spirit of hard work in the countries so as to continue using the currency in its operations.

These advantages prompted the GCC in establishing the Gulf Dinar. Following the example of the European Union states, they realized that establishing their own currency is associated with several benefits, like the ones enjoyed by the European Union states. Therefore, the GCC came up with the decision of introducing the new currency for better choices on their future policies (Vivekanand, 2010). The GCC officials observed that there were so many benefits of having a common currency in a region as far as traveling from one state to another was concerned.

Therefore, by introducing the Gulf Dinar will be a benefit to many. For instance, when one moves from Kuwait to Saudi, it will no longer be necessary to exchange their money in the exchange bureaus once they are leaving or entering the countries. Therefore, the costs related to transactions for traders and travelers using the common currency in the monetary union will be reduced. Additionally, there will be fewer losses associated with the traveling exercise. This is because of the ‘bid-ask margin and time’ (Per Your Request, 2007). Effects on the Middle East and Worldwide

The introduction of any currency in a country has both positive and negative effects in any country. This depends on how the countries manage their finances, as well as how they relate to the other currencies in their region. Therefore, the introduction of the Gulf Dinar could have both positive and negative effects in the Middle East and the world at large (Per Your Request, 2007). The most significant positive effects in the Middle East would be the reduction of the traveling costs, as it was one of the purposes of introducing the currency.

Therefore, the people will enjoy speed and efficiency as they will not have to make long queues in the exchange bureaus (Per Your Request, 2007). Intraregional trade will also be another positive effect. The union will be in a better position to trade with other countries in the region and in the world at large. This is actually another purpose why the Dinar will be used. With intraregional trade, the countries will be able to get the goods and services that they do not have in their country easily. For example, it will be very easy for traders in Kuwait to get all goods from Saudi Arabia.

It will also be a benefit to the other countries in the world because they will get goods and services from this region, as the currency will be pegged to the dollar (Vivekanand, 2010). To start with, the Gulf Dinar would benefit the monetary union in relation to diversification and macroeconomics. The reason behind this is because all countries will be sharing the same business cycle. There would not be absence of exogenous shocks in the region. These shocks will be either positive or negative. However, the responses from the countries will differ.

The implication is that the way monetary policies will respond to the shocks exposed to them will vary. With the introduction of the currency union, all the countries will be required to follow the same monetary policy despite of all this (Per Your Request, 2007). Secondly, the countries in the Middle East will benefit as the risks in exchange rates will be done away with. The benefits to be gotten by the currency union will only be high if the trade present between the countries in the union will be accountable.

However, this can present a risk because, most of the countries in these regions are oil producing, and they trade with the US, Europe and China. Additionally, all the countries in this region, except Kuwait, are pegged to the U. S. dollar. Therefore, eliminating transactions costs in the Middle East countries using the Gulf Dinar will be disadvantageous as there will several marginal effects (Per Your Request, 2007). The introduction of the current currency can also be viewed as a strategic game. This is because the countries will be required to weigh two options.

They will have to determine their own national interest or the advantages that are accrued to the union. There have been several researchers in the field of Finance and Economics who have proved that the interest of any nation is more important than that of the Union. These results have been revealed by countries such as Oman, which indicated that the most important thing was to control the destiny of its people other than that of the union. Kuwait also followed cue, and claimed that it had given up on the U. S. dollar because of its depreciation.

Therefore, it escaped the issue of inflation, as it would be forced to but goods at a higher cost (Per Your Request, 2007). Conclusion From the above discussion, it is evident that the introduction of the Gulf Dinar will bring benefits to the Middle East based on the purposes of its introduction. However, its implementation has to be correctly done so as to avoid the negative effects that can arise from it. References Arab News. (2009). Riyadh to host GCC central bank. Retrieved from http://archive. arabnews. com/? page=1&section=0&article=122264&d=6&m=5&y=2009 BBC. (1998). Special Report Emu: The disadvantages. Retrieved from

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