Weekend Trivia: GCC Questions

Question #1: What is the GCC?

Answer: As described by the BBC News "The Gulf Co-operation Council, or GCC, is a loose political and economic alliance made up of six Gulf states. It aims to boost economic cooperation between members and, through collective security, to guard against any threat from neighbouring states and from Islamic extremism.....The GCC was formed in May 1981 against the backdrop of the Islamic revolution in Iran and the Iraq-Iran war.

Its members - Saudi Arabia, Kuwait, the United Arab Emirates, Oman, Qatar and Bahrain - share similar political systems and a common social and cultural outlook. They are autocratic monarchies or sheikhdoms, with limited or non-existent political participation.

Collectively, GCC countries possess almost half of the world's oil reserves. Saudi Arabia is the most powerful member of the alliance."


Question #2: What did the GCC create on January 1 of this year?

Answer: At a summit in December, the GCC announced their plan to launch a common market on January 1 and a currency union by 2010. Modeled after the European Union (EU), "The Gulf Common Market aims to create one market.....raising production efficiency and optimum usage of available resources and improving the GCC's negotiating position among international economic forums" according to a final communique from the summit. This is the first step toward common banking, common exchanges and a common currency.


Question #3: What are the implications to the US dollar?

Answer: The GCC Common Market has "officially" said that its common currency will be pegged to the US dollar. This makes sense as most of the regional currency is tied to the dollar today and crude oil is priced in dollars.

Being tied to the US dollar, however, brings problems. They are subject to the whims of the US Federal Reserve. What may be good for the US (and those practices are highly debatable), may not be good for the GCC countries. While the US turns on their printing presses to stimulate their economy, the result is very inflationary for the GCC countries.

Unofficially, many analysts believe that it is only a matter of time before this common currency is delinked from the US dollar and floats on its own. Kuwait has already floated its currency.

The end of the petrodollar will have major world implications.