December 16, 2009
Several Gulf States are taking the steps necessary to create a pan-arab currency. The core group of countries consists of Saudi Arabia, Kuwait, Bahrain, and Qatar.
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.
This is not a new concept, back during the 70’s the Shah of Iran had tried to get the ball rolling on such a concept, arguing that the gulf countries should use their oil wealth as a basis to create their own central bank and currency. Iran recently also launched an oil bourse, with the intention of being able to price oil in an alternative currency, but so far it hasn’t had much of an impact.
With the GCC countries behind such an effort to price oil in an alternative currency to the US Dollar however, collectively they have enough power to make an impact. Currently most oil sold or traded in the world is priced in US Dollars, which creates a demand for dollars as anybody buying oil must first buy US dollars. If that source of demand falls, it has the potential to further weaken our currency and lead to higher interest rates.
[via The Telegraph]
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