ECONOMIC AND MONETARY INTEGRATION IN THE GULF COOPERATION COUNCIL (GCC): A KUWAITI PERSPECTIVE

The State of Kuwait is has been a member of the Gulf Cooperation Council (GCC) since its establishment in 1980. Kuwait is a geographically small but oil-rich country, whose economic development in recent years is the result of an increase in both the production and prices of oil, which now accounts for almost 90% of exports. Meanwhile Kuwait imports almost all its local market needs from abroad. In 2010 the Kuwaiti government passed a development plan which was intended to diversify the Kuwaiti economy and promote non-oil economic sectors. Kuwait has an open economy, and is an ally of its GCC neighbours and the West. It is a member of the World Trade Organisation, which helps to enhance the country’s exports and imports. At the same time Kuwait is committed to advancing Economic and Monetary Integration with the GCC countries, and put into practice the guidelines which will make the Currency and Economic Union successful. This study will extend the literature on Economic and Monetary Integration in the context of the GCC monetary union. A literature review of the theory of Optimum Currency Areas (OCA) examines the development of exchange rate policy and monetary unions. Investigating and assessing Kuwait’s national interest in joining the GCC currency union is the main objective of this thesis. The study applies both quantitative and qualitative approaches to estimating the likely costs and benefits. In the study annual published data is used to analyse the country’s main economic structure and indicators, and semi-structured interviews are used to ascertain the opinions of Kuwaiti nationals working in financial institutions concerning monetary union. The conclusion of our study is that Kuwait is ready to join the GCC monetary union, the benefits of membership outweighing the costs. Having an oil-based economy like that of other GCC countries will make it easier for Kuwait to join the GCC monetary union. In addition, Kuwait imports products from abroad to meet local demand and controls inflation through its exchange rate regime. The Central Bank of Kuwait (CBK) is the sole authority managing the country’s monetary policy and the financial sector. However, GCC monetary union will subordinate the CBK to the Gulf Central Bank and reduce its flexibility to use its own monetary tools.