The Gulf Cooperation Council (GCC) countries have maintained financial and monetary stability in the region, said HE Governor of Qatar Central Bank (QCB) Sheikh Bandar bin Mohammed bin Saoud Al-Thani.
Speaking during his participation in the first discussion session of Their Excellencies the GCC Central Bank Governors under the title 'The impact of exchange rate policy on financial and monetary stability in the GCC Countries', His Excellency noted that the fixed exchange rate policy is the most successful one for the GCC countries.
At the beginning of the session during the first edition of the first annual conference on enhancing joint Gulf cooperation within the GCC Central Banks Governors Committee, hosted by the State of Qatar, His Excellency added that each country has a specific policy regarding its national currency as it forms the basis of the economy of each country, so each country has its own economic nature that determines the adopted exchange policy, noting that most GCC countries adopted a fixed exchange rate policy that has proven successful, which is reflected in the benefits achieved, and it has led to financial and monetary stability.
Adopting this policy, he noted, attracted foreign capital, preserved domestic capital, mitigated fluctuations in the prices of imported materials and in inflation, and reduced the cost of major projects.
Considering the many benefits achieved thanks to the current exchange rate policy and comparing them with the challenges represented by the lack of independence of monetary policy, the benefits are much greater than the challenges that can be faced, the QCB Governor stressed, adding that the economies of the region need to impart knowledge regarding construction and technology, and all of these matters require policies that contribute to enhancing financial and monetary stability and attracting capital to the countries of the region. The current exchange rate policy has contributed to attracting investments and achieving economic diversification, and fixing the exchange rate has limited currency fluctuations and the associated risks, he said.
Adopting a specific exchange rate policy comes after an in-depth study of the economic structure of countries and infrastructure along with an assessment of the benefits that this policy will reap, His Excellency explained. Therefore, after reviewing all this data, it became clear that the fixed exchange rate policy is the most successful one for the Gulf countries, he said, stressing that adopting another exchange rate policy requires a change in the economic structure which takes years and decades and does not happen overnight, noting the International Monetary Fund's praise for the success of the current exchange rate policy.
HE Sheikh Bandar bin Mohammed bin Saoud Al-Thani also touched on the GCC countries' success in maintaining a moderate inflation, and that the countries of the world witnessed, over the past two years, an increase in interest rates, reaching 9 and 10 percent, while in the GCC countries they were around 5 and 6 percent. He stressed the effectiveness of the monetary policy followed in reducing inflation levels.
Governor of the Saudi Central Bank Ayman Al-Sayari said monetary policy is one of the important economic policies that aim to maintain monetary stability and its target depends on the economic structure and its characteristics.
His Excellency explained that energy exports and their derivatives represent approximately 70 percent of the commodity exports of the GCC countries as these goods are priced in addition to imports in US dollars, noting that statistics indicate that the majority of transactions in global trade are settled in US dollars and that is why fixing the exchange rate contributes to reducing currency fluctuations and thus reducing imported inflationary pressures.
He also pointed out the role played by the fixed exchange rate policy and monetary stability in supporting economic diversification through their contribution to supporting the ability to plan financially and formulate long-term economic policies, which supports making appropriate investment decisions and increases the attractiveness of the economy to foreign investment, in addition to supporting the economic sectors in the GCC countries that depend on importing intermediate and capital goods, which are important inputs in the production process of the economy.
Maintaining monetary stability over the past decades has enhanced the credibility of GCC central banks, and this was reflected in the ability to maintain low interest rate margins compared to many other emerging markets, His Excellency said, stressing that GCC central banks have proven their success during the Covid-19 pandemic in maintaining monetary and financial stability and supporting the private sector's ability to obtain credit, which contributed to supporting the national economy during the pandemic.
His Excellency praised the growth of the region's economy between 2000 and 2023 as the average GDP of the GCC countries grew by about 4 percent compared to that of the economies of developed countries which recorded a growth of 1.8 percent for the same period, while maintaining stable inflation rates in the GCC countries at around 2 percent.
He also pointed to the average growth of non-oil activities in the past two years by about 5 percent in the Kingdom and bank credit by about 11 percent, while maintaining stable inflation levels
The Governor of the Saudi Central Bank stressed that monetary stability is the most important goal of the central bank and its achievement has contributed to reducing inflationary pressures and supporting economic growth.
In turn, Executive President of the Central Bank of Oman Tahir Salim Al Amri said that exchange rates vary, with pegging to a specific currency being for purely economic reasons, noting the GCC economies diverse gains.
His Excellency praised the regions economies describing them as being among the largest and most significant in the global economy, which necessitates finding an appropriate exchange rate to achieve the goals and objectives of the regions countries.
The Executive President of the Central Bank of Oman added that historically, a fixed exchange rate has proven beneficial and effective for the regions economy, as it provides a very favorable environment for attracting investments, with the integration of GCC countries fiscal and monetary policies ensuring stability.
His Excellency continued by saying that having a fiscal policy that maintains the prices of essential goods and services without maintaining exchange rate stability (monetary policy) produces very little impact, therefore, integration is among important policies.
HE Al Amri also said that while the world is moving away from a situation dominated by inflation, the Gulf region experienced the lowest global inflation level, even compared to countries with major world currencies, which are actually suffering from high inflation. He added that a flexible exchange rate could cause inflation, which would be to the detriment of the regions economy, noting that the current exchange rate policy was based on a thorough consideration.
In turn, Governor of Central Bank of Bahrain Khalid Ebrahim Humaidan said that fixing the exchange rate has many benefits, the most prominent of which is achieving higher growth rates and recording lower inflation rates, along with attracting and drawing greater investments.
His Excellency added that over the past forty years, the GCC countries have recorded high growth rates compared to the rest of the world, with the Gulf economy growing at a faster pace by approximately 15 percent compared to other countries.
The Governor of Central Bank of Bahrain added that the average inflation rate in the region is around 2 percent, whereas the global average stands at 5.1 percent.
His Excellency pointed out that the region has attracted high levels of direct foreign investment, with an annual growth rate of 5.5 percent in foreign investments, compared to a 3.1 percent growth rate in other parts of the world