Fikr is an annual conference held by the Arab Thought Foundation, that brings together Arab leaders from all corners of society, be it business, technology, education and so on, to discuss strategies for the Arab world to face in the ever changing global society. The Fikr conference is a place to exchange ideas and experience between Arab intellectuals, and as it was held in Bahrain this year, I was fortunate enough to get a chance to visit.
The conference spans three days (1-3 Dec, 2007) and the agenda covers a workshops, discussions, and talks spanning a number of issues including technology, investments, energy, social responsibility and many more.
Of particular interest to myself (due to my background) was the discussion regarding the Gulf currency and financial markets, of which I will talk of about in more detail. If you have any interest in other issues, please visit Mahmood's Den, as he highlights the other Bahraini Bloggers that have volunteered to cover the event.
The Gulf currency discussion was a very interesting one, bringing together some of the heavyweights of the gulf financial markets, including Raja Al Bakmi, Chairman of the Monetary Union council for the GCC, Faisal Al-Mutawa, Managing Director of Bayan Investments Kuwait, Rasheed Al-Maraj, Governor of the Central Bank of Bahrain, and a number of others.
The discusson started off by pointing out the fact that the Gulf countries do not currently have much long-term wealth, but are infact in state of temporary liquidity where money seems to be floating all around. This is obviously not going to last forever, as the oil wells will dry out sooner or later, and therefore much of this liquidity needs to be used in building infrastructure, strengthening education, and diversifying the methods of generating income, to ensure that after this period ends, the region will have already built enough to sustain itself without the need for petro-dollars.
As the discussion shifted to the united gulf currency, a number of issues arose. The first included the benefits of the single currency; easier and more efficient trade between the GCC, less costly foreign exchange transactions, and so on. The size and weight of the currency will also be significant, and will place it on the ranks of the stronger, more globally traded currencies such as the Euro, Dollar, Yen and so on.
The decision to unify the currencies has also recently been delayed, to be reviewed again in 2010. Why the delay? Well, the original problem with unifying the currencies of the six countries was making sure they are all valued similarly. This goal was almost achievable when the GCC currencies were all pegged to the dollar. However, with a weakening US economy, the value of the dollar plummeted while the GCC countries economies all grew, causing enormous strain on the region. Kuwait quickly decided to unpeg it's currency from the declining dollar, and instead peg it to a basket of currencies, while the reminaing countries stuck with the dollar peg. This unfortunately caused inconsistency in the exchange rates and therefore another strategy needs to be looked at to balance the currency values. Currently on the books is either Kuwait returning to a dollar peg, which seems unlikely, or the GCC countries deciding to peg to a specific basket. All in all, this decision will probably be high on the agenda of the upcoming GCC summit.
Another pre-requisite for a united currency is the harmonization of the economies. Currently, some gulf countries have high inflation, others have reasonable levels, and some have ridiculously excessive levels. Also, the GDP per capita of the six countries ranges from around USD14,000 to almost USD50,000. Without bringing the economies of these countries closer together, unifying the currency would be very difficult.
In the case of the European Union, a Stabalization Fund was created to help pick up the economies of the weaker countries, to ensure a more stable union between the countries. Perhaps something similar could be created for the GCC?
Overall, this was a great discussion, bringing up many valid points, and raising a number of important questions, hopefully to be addressed in the upcoming GCC Supreme Council Summit.
(For more information on the conference, please visit the Arab Though Foundation Fikr6 website)