Fundamental Economic Implications of GMU
Posted by Ivo Cerckel on September 16th, 2008
The euro has severed its link with the nation-state or polis, said former European Central Bank President Duisenberg in his 2002 Charlemagne speech.
http://www.ecb.eu/press/key/date/2002/html/sp020509.en.html
Why should the Gulf Central Bank (GCB) then be backed by strong political backing, as says the Gulf News article which follows?
Political is the adjective derived from polis.
Will the GCB not be independent vis-à-vis the nation-states/poleis(the plural of polis) comprising the Gulf Monetary Union (GMU)?
Gulf central bank could end inflation and currency woes
By Gaurav Ghose, Financial Features Editor
Published: September 15, 2008, 16:36
http://www.gulfnews.com/business/Banking_and_Finance/10245211.html
SNIP
The report The Institutional Framework of the Gulf Central Bank [released by the Dubai International Financial Centre (DIFC) Authority, on Monday] recommends a Gulf central bank with its own staff and administration backed by strong political backing that will give it credibility in international markets.
UNSNIP
Yes, as Professor David Miles, then at … Merrill Lynch, argued ten years ago concerning European Monetary Union (EMU), it is almost universally accepted that economic and monetary union is primarily a political, rather than an economic enterprise. The implication of this proposition is that political goals (the avoidance of another European war, the desire to cement Franco-German relations) are what is driving the process forward. Wise commentators tell us that [GMU] will happen not because of economic forces, but in spite of them. This is all much too glib, and ignores the economic factors which make monetary union for many
(but perhaps not all –
Ivo: not for Oman as regards the single currency)
European countries a sensible arrangement. It is economic conditions that make this so; they make a single currency for many European countries the best system. This is a strong statement. But ‘best’ is synonymous with ‘least bad’. It is completely implausible that monetary union is a panacea for many European countries’ problems. But it is plausible that having permanently-fixed exchange rates against a country’s closest trading partners is, in many cases, a less bad option than having volatile ones.
(David Miles, “Fundamental Economic Implications of EMU”, in: Paul Temperton, (ed.), “The euro”, John Wiley and Sons, 1998, 2nd ed., 51, p. 51)
Economic factors make monetary union for many GCC countries a sensible arrangement.
Not for Oman as regards the single currency.
For Oman, GMU is only about marking the GMU’s gold reserves to market by the Gulf Monetary Authority or Gulf Monetary Council which should come into being before the GCB which, the latter, should issue the Khaleej Dinar.