ENGLISH

Establishing Conversion Values for New Currency Unions: Method and Application to the planned Gulf Cooperation Council (GCC) Currency Union

By Bassem Kamar; Jean-Etienne Carlotti; Russell C. Krueger

Book information

Publisher
International Monetary Fund
Year
2009
ISBN
9781451917567, 9781451873313
LCC
HG1212 -- .K784 2009eb
Language
english
Format
EPUB
Filesize
1 MB (1447307 bytes)
Series
IMF Working Papers
Edition
1
Pages
60\0
Time added
2023-08-25 23:54:32
American.Monetary unions -- Persian Gulf States. ; Currency

Description

A key issue in creating a new currency union is setting the rates to convert national currencies into the new union currency. Planned unions in the Gulf region and Africa are seeking methods to set the conversion rates when their new currencies are created. We propose a forward-looking econometric methodology to determine conversion rates by calculating the degree of misalignment in the real exchange rate, and apply it to the GCC currency union. For each GCC currency, we identify the year at which the economy is the closest to its internal and external equilibrium, and then estimate the degree of misalignment in the bilateral real exchange rate vis-à-vis the U.S. dollar based on WEO forecasts until 2013. Application of the methodology to other regions is also considered.

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