In its July economic bulletin NCB Capital, which is owned by the Saudi National Commercial Bank, the six Gulf Co-operation Council (GCC) countries, which control more than 40% of the world’s proven oil deposits, need to first develop their financial markets and monetary instruments.

It noted that with the fiscal convergence criteria already set mostly in line with the ones followed under the Euro treaty, the GCC Monetary Union and the common currency would serve well as a logical basis for greater exchange rate flexibility.

The study said it believed the peg between the GCC currencies and the US dollar has served their economies and achieved financial stability despite a surge in inflation during 2007-2008.

It also warned that a decision by the GCC nations to unpeg their currencies in the absence of a better alternative would risk resulting in “increased volatility and undermining some of the recent gains.”

It added, “The lessons of the euro crisis are of great importance for the Gulf economies especially when the aim is to replicate the numerous successes, rather than the failures, of EU integration.”

“A clearly defined and comprehensive regulatory framework is of particular importance in this regard. After all, the key drawback with the EU was not a lack of rules but their incomplete implementation and ineffective enforcement,” the study said.

NCB Capital called for proper monitoring and enforcement mechanisms in the GCC to ensure that economic imbalances are detected and remedial measures taken before they problems can pose systemic risks.