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Saudi Arabia's King Salman and other GCC leaders at a summit in Riyadh.
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What do falling oil prices mean for GCC currency pegs?

Content from the Brookings Doha Center is now archived.  After 14 years of an impactful partnership, Brookings and the Brookings Doha Center are ending their affiliation as the center launches a separate public policy institution based in Qatar. The center will continue its important work under the name the Middle East Council on Global Affairs by the end of 2021.

Due to political disputes among Gulf Cooperation Council (GCC) countries and the dramatic decrease in oil prices, the GCC countries may face difficulties in sustaining their currency pegs. Even though the GCC has enjoyed fixed exchange rate regimes that are considered the ideal macroeconomic policy structure for these states, its foreign exchange markets have felt the pressure of the lower energy prices.

In his Doha Center policy briefing, Luiz Pinto (formerly a joint fellow with the center and Qatar University) inspects the basics of the GCC currency pegs and the potential of sustaining them over time. He argues that although static exchange rate regimes are still ideal for all the GCC countries, the capability of policymakers to support the pegs differs across the region. Moreover, the paper analyzes how the weighing scale of the payment pressures caused by different factors including the geopolitical risks have caused “peso problems” and increased the probabilities of liquidity catastrophe in the Gulf.

Pinto, a co-founder and managing director of the advisory firm Brics Overseas, asserts that GCC countries should provide economic support for Bahrain and Oman to prevent a financial crisis in the region. He calls for establishing new regional financial collaboration that includes bilateral agreements to reinforce policy negotiations. He concludes by encouraging GCC countries to attend peer-review meetings and macroeconomic monitoring sessions that would help them exchange data on short-term and medium-term capital flows.

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