The Persian Gulf nations have taken their first step to de-linking from the dollar.
“The Gulf monetary union pact has come into effect,” said Kuwait’s finance minister, Mustafa al-Shamali, speaking at a Gulf Co-operation Council (GCC) summit in Kuwait.
The move will give the hyper-rich club of oil exporters a petro-currency of their own, greatly increasing their influence in the global exchange and capital markets and potentially displacing the US dollar as the pricing currency for oil contracts. Between them they amount to regional superpower with a GDP of $1.2 trillion (£739bn), some 40pc of the world’s proven oil reserves, and financial clout equal to that of China.
Saudi Arabia, Kuwait, Bahrain, and Qatar are to launch the first phase next year, creating a Gulf Monetary Council that will evolve quickly into a full-fledged central bank.
The Gulf states remain divided over the wisdom of anchoring their economies to the US dollar. The Gulf currency – dubbed “Gulfo” – is likely to track a global exchange basket and may ultimately float as a regional reserve currency in its own right. “The US dollar has failed. We need to delink,” said Nahed Taher, chief executive of Bahrain’s Gulf One Investment Bank.
The Gulf nations are modeling their monetary union on Europe's experience. They have a couple advantages over Europe (fewer nations, a single language and religion, and no history of bloody conflict), but three notable disadvantages (UAE isn't part of it yet, labor mobility between states is nonexistent, the union will be dominated by Riyadh as opposed to a union of equals).
This is not a short-term threat to the dollar, but it is a long-term one. If world oil isn't priced and sold in dollars then America's reserve currency status is doomed.
don't they already act in concert?
But will they promote their own unified currency?
I agree, this sounds like getting rid of oil traded in U.S. dollars.
Also, you know this should be in the "global" forum. Macroeconomics is for U.S. EIs for the most part.
What's with the 'O' in these things?
I get the 'o' in "Euro" because it' denotes EUROpeans or EUROpe. But "Gulfo"? That reminds me of the talk of a single North American currency back a few years ago, dubbed the "Amero". Honestly, a little creativity in the name of a new currency should be a mandate in building these things. We originally had the Shilling and the Pound in the early colonial days. The "dollar" has a mixed origin, we officially borrowed the name from the Spanish Dollar because when we were designing our currency, we used that as a template. But there was also another continental influence as well, the German Thaler was also considered a template, this was used as one of the primary currencies in the Holy Roman Empire. Ironically enough, Spain would forfeit it's Dollar for the Peseta when it joined the Latin Monetary Union. Other cousins to the "dollar" that appeared in that era were the Dutch daalder, the Bohemian tolar. Hrmm...I'm noticing a trend here, there seems to be similar sounding suffix vogue going on here.
Ok, I know completely off topic, but hey history tends to repeat, and this is no different. The traditional currencies of the Gulf/Middle East region were the dinar. The Dinar itself is the child of the ancient Roman Denarius. In fact, the Arabs have a history of using asset-backed currencies, primarily gold. For centuries, the Gold Dinar was the currency of various caliphates and empires from North Africa to India. Outside of the Gold Dinar was I think the SIlver Durham or Dirham as the only other viable currency for trade in that era.; I had a professor who believed that the town of Durham, NC was actually named after such a coin, but who knows. A Muslim friend of mine said that the Quran actually stipulates that the zakat (tithing) be in gold or silver coinage, none of this funny fiat money.
Don't be surprised if in the 21st century, that these Gulf States create adopt a new Dinar. In the past, it was the Gold Dinar, perhaps now it will be the Oil Dinar?