Beneficial Strategies for GCC
The establishment of the Gulf Monetary Union was linked to the encouragement of political improvements in the region. It was based on one primary aim: to enhance the Gulf’s political sphere’s stability by adding unity to the economic and political actions the Monetary Union can implement. By creating power in the sphere of bargaining, a greater constituency in politics, the united block of GCC countries will be able to deal with the external threats, both political and economic. Also, the move to a unified currency justified the distancing from the US dollar as well as gave the block of GCC countries more opportunities in negotiations (Antoniades 4).
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The right strategy for the block of GCC countries is a combination of transparency, discipline, a set of developed possibilities in the area of analysis alongside with clear communication and coordination. Because the region possesses a great reputation in terms of diverse economic capabilities as well as an inviting profile for investors, GCC countries can sustain their competitive advantage on an appropriate level (Al-Ghufli 7). Also, the strategy of economic diversification, although not innovative, remains at the top of the political agenda because of gas and oil being primary channels of income for the region. Furthermore, to sustain the diversification strategy in the region, the manufacturing sector should be separated into the import substitution industry and the oil-based industry (Hvidt 6).
Changes in Pricing Structure
The Monetary Union is not only linked to establishing a unified currency among the members of GCC countries but also to the conformity in the banking and monetary policies. The sphere of foreign exchange reserves worked with the integration of the financial market and the “reasonable economic convergence” (Kamar and Bakardzhieva 2). Due to a significant dependency on hydrocarbon, GCC countries’ macroeconomic performance is directly linked to the global prices for gas and oil. The governmental bodies in GCC countries have been encouraging the process of moving away from the sector of hydrocarbon and public spheres to prepare the GCC countries for subsequent depletion and to lessen the volatility of the macroeconomic area. The variability of prices on petroleum also affects the region’s economic activity alongside its current account balance (Takagi 10).
The strategy of transparency, as adopted by the Monetary Union, has been able to ensure the wide availability of services and goods at competitive prices on both international and domestic markets. Furthermore, significant flexibility in terms of the employment market has led to the limitations in the sphere of non-tradable sector prices despite the increases in property prices caused by the inflow of foreign professional labor (Khan 10). The rise in the degree of transparency and openness is linked to the decrease in capital controls, which, consequently, leads to a significant likelihood of fluctuations in capital flows for both export and import goods.
Thus, as the countries in the GCC region are coordinately working towards the strategy of diversification, the irrelevance of the dollar currency can potentially encourage the changes in the oil and non-oil prices; boost the levels of export and improve the account balances only under a condition that the countries’ economies are not relying on the intermediate goods and imported raw materials (Rosmy, Balli and Osman 19). The GCC economies issue remains in the sphere of prices on rent and food, two main causes of inflation in the region.
Al-Ghufli, Yousef. GCC Monetary Union: Cost-Benefit Analysis. 2010. Web.
Antoniades, Alexis. The Gulf Monetary Union. 2011. Web.
Hvidt, Martin. Economic Diversification in GCC Countries: Past Record and Future Trends. 2013. Web.
Kamar, Bassem, and Damyana Bakardzhieva. The Appropriate Monetary Policy Coordination for the GCC Monetary Union. 2006. Web.
Khan, Moshin. The GCC Monetary Union – Choice of Exchange Rate Regime. 2008. Web.
Rosmy, Jean Louis, Faruk Balli, and Mohamed Osman. “On the Feasibility of Monetary Union among Gulf Cooperation Council (GCC) Countries: Does the Symmetry of Shocks Extend to the Non-oil Sector?” Journal of Economics and Finance 36.2. (2012): 319-334. Print.
Takagi, Shinji. Establishing Monetary Union in the Gulf Cooperation Council: What Lessons for Regional Cooperation? 2012. Web.