The suitability of the GCC for Monetary Union

The member states of the Gulf Cooperation Council (GCC) have proposed the establishment of a monetary union in 2010. While this has the potential to generate significant benefits for the group and individual member states in the context of wider economic integration, it also removes some flexibility in the macro-economic management of national economies. It is important, therefore, that alternative adjustment mechanisms are in place and effective in the face of asymmetric shocks to the union. This paper looks at the theoretical and empirical literature and identifies the potential benefits and costs associated with a monetary union. It highlights the criteria used to asses to what extent any particular union would be beneficial and sustainable longer term. The GCC is reviewed with reference to this literature and some observations made as to the likelihood of a successful union and what steps could be undertaken to facilitate this.