The Future Gulf Currency Union Essay Example | Topics and Well Written Essays - 750 words

The Future Gulf Currency Union - Essay ExampleHowever, one has to be concerned about the factors that led to the success of pecuniary unions for the US and Euro-zone. The economy of the Gulf States is homogenous in nature, which relies heavily on oil. In contrast, the economy of the Euro-zone and US is heterogeneous with each state relying on modify economic sectors.The economics of the currency unification are clearly spelt out by Mundell (1961) in his theory of optimum currency areas. According to Mundell R. A. (1961), for a successful currency union there should be factor mobility within the region of currency union, while there should be factor immobility amid other regions in the world. So what are these factor mobility and factor immobility for the case of the Gulf States? These are factors of proceeds within the region of currency union. The mobility of factors of production helps to compensate for asymmetrical economic shocks in the region of currency union. The asymmetric al economic shocks are normally adjusted for by the flexibility of the currency transform rates. Without these adjustments or the mobility of the factors of production, unemployment and inflation would result. In line with the premise advocated by Mundell R. A., (1961), there should be little movement of factors of production outside the region of currency union.This cover will examine the case of the Gulf States in order to form an opinion on whether a monetary union is feasible based on the theory of optimum currency areas advocated by Mundell R. A. (1961). The situations leading to the formation of United States and Euro-zone currency union will be examined in order to determine how nearly they compare with the impending Gulf Monetary Union. The paper will further examine the economies of the six member countries, namely Bahrain, Oman, Kuwait, Qatar, Saudi Arabia, and United Arab Emirates (UAE), and see the impacts, which the apply of a common currency can have on them. The f actors that can