A monetary union can significantly constrain the policies countries can use when their economies start to sour. Typically, when a country faces crisis, its currency becomes weaker. Its goods then
become relatively cheaper and exports increase, which helps recovery.
But because the currencies concerned are currently pegged to the dollar, they do not have their own monetary policies anyway (see cover story).
The central banks are not able to increase the money supply in order to decrease the costs of goods because they are constantly balancing the values of their home currencies with the value of
the American dollar.
A regionally based monetary union could allow the countries involved to more tightly control their monetary policy than they can under the current dollar peg. “Right now the monetary policy is given to the Fed,” Antoniades says. “If the Fed was to raise interest rates because of inflation in the U.S., the countries have to follow. And the Fed will never care about what is going on in these economies.
The Fed will care about what is going on in the U.S.”
Back in Europe, Germany has had a disproportionate influence on the decision to grant a €30 billion loan to Greece.
Some fear that Saudi Arabia could hold similar sway in a Gulf union, as the Saudi economy is the Gulf’s biggest. In fact, the Gulf monetary council is located in Saudi Arabia; after the decision to move the location to Riyadh was made last year, the U.A.E. pulled out of the unified currency.
With Al Jasser as the bank’s first chair, Saudi Arabia has an even bigger chance to dominate the union. “You will have one unified voice but they are afraid this will be Saudi Arabia’s voice that will dominate the other countries. That is Oman’s fear also,” Antoniades says.
The Gulf monetary union has been in the works for more than 30 years. Antoniades thinks it may take another five to ten years to for all of the data organization and coordination necessary, but the
improved economic information will be worth it. “It doesn’t matter,” he says, “because my main argument is its not when the GCC union will happen but how it will happen.”

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