Will the New GCC Single Currency Include Gold?

Gulf Cooperation Council leaders yesterday concluded their 29th annual summit meeting in Muscat, Oman with a final approval for the creation of a single currency for the six-nation economic bloc, still targeted for 2010.

Saudi Arabia is the largest economy in the GCC and boasts substantial gold reserves. But whether gold will be included in the currency basket has not yet been decided.

Golden opportunity

GCC assistant secretary-general Mohammad Al Mazroui told Gulf News: ‘We first have to decide on the location of the Central Bank, then the Central Bank and Monetary Council will have to decide on the gold reserves for the Central Bank’.

The creation of the GCC single currency - likely to be known as the Khaleeji which means Gulf in Arabic - is a major gold event for two reasons.

First, the breaking of their dollar pegs by the Gulf Arab nations is clearly dollar negative. Secondly, any inclusion of gold either as a part of the monetary basket, or in the reserves of the new GCC Central Bank will create additional demand for the precious metal.

2009 deadline

The project is gathering pace, and no lesser a figure than Saudi Arabia’s King Abdullah has directed that GCC economic integration committees speed up their work and complete the whole exercise by September 2009.

It is only a couple of months since a group of Saudi businessmen allegedly bought $3.5 billion worth of gold, believed to be the largest ever single transaction for the precious metal. Perhaps in 2009 it will be gold rather than local currencies which become of interest to speculators about monetary reform in the GCC.

Gulf countries are keen to break away from the link with the US dollar because it ties them to inappropriate monetary policies that exaggerate the boom-to-bust cycle in their economies.

Comments

[Smarty_Pants:]

A gold backed currency would be a good start toward a sustainable economic model, but if it involves a central bank, then it is doubtful that it will work out in the long run.

Politics will drive central banking policies just as they do now. If the central bank allows fractional reserve banking, even with a gold standard, it will still lead to boom and bust cycles in the economy.

2008 Dec 31 11:57 AM

[Socialism c...:]

I don't know who he is...but the more I read from Smarty Pants, the more impressed I am. Dude knows what he is talking about!!

2008 Dec 31 01:24 PM

[Long Silver...:]

If the GCC implements a gold-backed currency (with little or no fractional reserve banking) and OPEC prices oil in this new sound currency, then the price of oil in fiat currencies could skyrocket (dollar, euro, yen, etc.).

Anybody know how Silver (and the Dubai silver exchange) might factor into this?

2008 Dec 31 02:50 PM

[SW Richmond:]

This is huge news for the USD. The accelerated deadline is also huge news, since the former deadline had been a non-specified date in "2010".

What's the rush?

2008 Dec 31 03:28 PM

[Roger Knights:]

I would imagine that the GCC would want to keep any gold-buying intentions quiet, to prevent a run-up in the price it would have to pay. (Perhaps that 3.4 billion private purchase was actually a catspaw purchase for the GCC?)

The most important impact of a decision to include gold in the GCC's currency would be psychological. It would be a straw in the wind for other third-world countries, indicating which way the wind is blowing and setting a precedent for timid, crowd-following central bankers outside the first world to follow. It may be that it was this news that was mostly responsible for spiking the price of gold today (from 860 to 883).

2008 Dec 31 03:52 PM

[bearfund:]

"Gold-backed" just means its value drops in dramatic discrete steps rather than more or less continually. For reference look at the history of other "gold-backed" currencies that were periodically devalued in response to one crisis or another.

The way to avoid this is to issue gold and silver coins as the only unit of money, and denominate them by weight, not some notional currency unit. If someone owes me 100 ounces of gold, I don't need to worry about the revaluation of my debtor's home currency. A troy ounce is a troy ounce and that's all there is to it.

Chances that the GCC is contemplating such a move: somewhere between zero and nil.

2008 Dec 31 07:46 PM

[fran:]

the group's controlling faction must have "central bank", lest they lose important element of control.


On Dec 31 11:57 AM Smarty_Pants wrote:

> A gold backed currency would be a good start toward a sustainable
> economic model, but if it involves a central bank, then it is doubtful
> that it will work out in the long run.
>
> Politics will drive central banking policies just as they do now.
> If the central bank allows fractional reserve banking, even with
> a gold standard, it will still lead to boom and bust cycles in the
> economy.

Jan 01 06:53 AM

[deuxsous:]

If the dollar is so bad why are the Gulf sheiks worried so much about the price of oil in dollars falling?

Jan 04 10:41 PM

[Petter Fink:]

Just wait until these Middle Eastern Countries DUMP the US DOLLAR and TREASURER NOTES....

The USA Will be Doomed.

Buy Gold and Silver NOW... while you still can.

Jan 05 07:21 AM

[kiwitrader2009:]

If your customer is frantically buying your product but you believe he will shortly go broke, what would you do? The Arabs would prefer that - starting in the short-term - it would be good to have somewhere to park their greenbacks once they receive them in consideration for oil.

That way they keep selling oil until it runs out, but the proceeds are not exposed to a USD that is going to héll in a handcart.

Jan 06 09:22 PM

[sildenafil:]

I would imagine that the GCC would want to keep any gold-buying intentions quiet, to prevent a run-up in the price it would have to pay. (Perhaps that 3.4 billion private purchase was actually a catspaw purchase for the GCC?)

Oct 28 05:41 AM