3 December 2007

Fikr6; Gulf Currency & Financial Markets

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)


N. said...

I believe this is a good and positive thing, not only because of a stronger economy but since there will be multiple countries involved issues such as transparency will be very high. Hopefully, I'm hoping if this indeed does take hold it should reduce corruption. I'm speculating but I hope thats the case.

Anonymous said...

I second n on that one :)

Missy said...

madre shesalfa bas abi a7rek ena i got a D40 yayness *.* a7laa min ur ugly fugly mugly bugly camera :P

Anonymous said...

Sounds interesting; it's still on for today right? Can we pass by and take a look or is it only for specific people?

As for the currency, I hope they get their act together and do it sooner. Will help the gulf quite a lot.

ammaro.com said...

N; It definately holds a lot of positive notes; as long as the complications towards getting there are worked out, and the structure on which the currency is based on is calculated correctly, then this should do the region a whole lot of good.

Speedo; I second you seconding N

Missy; Thanks for reading what I wrote and giving your very deep insight into the situation. Oh, and congrats on the Nikon. Show us pix la?

Anon; Well, we can't rush it. If launched without fulfilling the pre-requisites to a currency union, a few of the gulf countries will actually suffer more than they benefit.

Shale bin Agnon said...

Okay, that sounds great. Our currency union kicks ass, and being part of the EU makes us no less identifiable as being Irish, while giving us more indirect international influence. First there were tribes, then villages, towns, cities, countries, and now federations of countries. Cool.

The question is whether you think a GCC, the EU, US, China, and India (give it a lot of years for an African Union) will make war more or less likely? Will less groups make war more or less likely?

(oh, and I know I am skipping over the financial implications)

ammaro.com said...

Interesting point; my personal view is war is definately less likely between the members of such a union, for fear of reprecussions from the other member states.

As for the collective entity as a whole? Well, you have bigger, stronger entities ready to wage war with other big entities. Who knows? Perhaps a physical war is futile. You now have the war of trade, commerce, foreign exchange and so on, which if played right, could cripple unions. In that sort of scenario, war is definately more probable.

Moon-Light7 said...

ummm...I have a question! How do enjoy these things?! seriously! I'm not being silly here. Because I'm a Business Uni studnet & by all means I should at least be interested in these things...but I just can't. I want to, cuz I'm supposed to do all kinds of assignments, papers & projects about these kind of things, and I want to do something good, but for me, it's simply too hard to be interested in or care for business & the economy!! yet somehow, it's all around us that we can't escape it!

I should've studied something else instead!

KJ said...

I think it is for the best they unite the currency.. I mean they are united in almost everything else in my opinion. The Euro didn't fare well in the beginning but look at it now.

Here in the UAE most people are groaning (including myself) because a lot of salaries for us expats is given in dollars, not dirhams... so we are trying to have our contracts re-written with the Euro equivalence so that in a couple of years we are not earned half what we are supposed to be earning

Shale bin Agnon said...

Erm, in no way are we feeling smug about the current strength of the Euro. Honestly. No, seriously, we are not. What do you mean you do not believe me?

Actually, it does Ireland no good really, because we export to America, and if they cannot afford our stuff...!!

The real potential crippling of a union is petrol. Otherwise, if the union is large enough, it can mostly turn its economy inwards. All our cities were built by vikings, who had no cars, so if cars became infeasible, we would mostly survive, but in a really sucky way.

ammaro.com said...

moon; understanding how big the impact they have on you and everything around you is definately one of those reasons. take a look around you; have you been feeling the prices go up? feeling the impact on society? seen people, families, and so on around you complain of life getting more and more expensive? when you read, talk about these issues, and so on, you start wondering, and things such as this aim to help answer some of these questions, or solve some of the issues. read more news, involve yourself more, and you'll automatically see yourself getting more inquisitive into such issues

kj; they're not as united as you might think. there's actually a lot of competitiveness and 'under-the-table' agendas going on. anyway, the single currency is great as a concept, but its not a simple process to merge the economies of the 6 countries, and a lot of framework needs to be done before it can actually work efficiently

shale; of course, the strength of the currency has a two way impact. like you said, your goods become more expensive to buy. china/taiwan/thailand have a similar dilemma with the increase in the strength of their currencies, and their previously 'cheap' imported goods are becoming more expensive, so people are starting to look elsewhere. they have actually been trying to keep their currency weak on purpose, and bank on the dollar keeping its strength. its a whole complex equation that needs a good three or four posts to discuss in detail by itself.

and yes, living without cars is a little sucky.

Shale bin Agnon said...

1. Must buy some Chinese currency, unless you have a better investment recommendation?

2. I actually do not own a car. I live ten minutes on foot from everything in Dublin, everything important anyway.

ammaro.com said...

1. well, i suggest a portfolio rather than a single currency, to hedge some of your risk. and honestly, if you have money, buy some property in the US since the market is crashing/has crashed and prices are at the ground, or wait a good 6 months and buy some property in the UK when the sub-prime crisis hits there. youll get a lot of good deals.

2. wow, you can walk across dublin in 10 minutes? either the place is tiny, or your have long legs.

Moon-Light7 said...

mm! ok, I'll try that:-) thanx 4 the good advice:D I'll tell u if there were any improvements;)

Were actually discussing the GCC Summit next week in class, I find myself unintentionally following its news! I'm improving arleady heheh :-) anyway, ur posts are a good reference too, very helpful :D as we're always touching on issues such as globalization and how it's changing the economy and all.

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nGenius said...

TO those who are interested in Economic 101 should understand the having one currency (USA Dollar) as foreign reserves, especially when dollar is weak and plunging everyday, is not a good Idea.

Diversify foreign reserves from Dollar to Gold, Euro, Chinese Yuan. This should be the short, medium and long term planing for every Muslim country
to avoid the risk of currency losses or economic turbulence.

"China, India, Brazil, Mexico and South Africa last week challenged the U.S. dollar as the primary denomination of world reserves. In China, whose foreign-exchange reserves probably topped $2 trillion for the first time in the three months to June 30, Premier Wen Jiabao this year said he was concerned that his nation’s dollar assets may decline as the U.S. sells record amounts of debt to fund stimulus spending."

Asian central bankers are now diversify their fx reserves to protect their investment and absorb what the experts forecast as an ever larger
India had recently purchase 200 tonnes of Precious Metal (gold) to diversity its reserves.

Sri Lanka Central Bank assistant governor Nandalal Weerasinghe said, "We have been observing that prices of gold have been going up so we have been strategically buying gold over the past several months as part of a reserve management process of diversifying our portfolio," he told AFP."

Former prime minister of Malaysia Dr Mahathir Mohamad has called on the Islamic countries to find an alternative to US dollar reserves in central banks and embrace the use of the gold dinar for international trade.