Gulf takes wrong currency path

The end-of-year meeting of the Gulf Cooperation Council (GCC) in Muscat apparently saw another step along the road to the creation of a GCC currency designed along the lines of the euro.

It is surprising, to say the least, that the GCC is not taking a cool step back and reviewing the project from first principles in the light of the continuing global credit crash, which is about to enter its

next phase of a wave of defaults in the world of commercial property and private equity.
The GCC members produce between them some 16 million barrels of crude oil per day, and possess some 45% of known oil reserves. In addition, members, particularly Qatar, also have immense reserves of natural gas.

The key innovation that will enable a Gulf Clearing Union is the simple expedient of creating – within a suitable legal framework – a “petro” unit redeemable in a constant amount of energy value, let’s say the energy released by burning 100ml (measured at 20 Centigrade) of n-octane.

Such a definition of an energy value unit provides a straightforward benchmark for both domestic and international buyers of oil, gas, petroleum products, and even electricity, to use petros – as well as, or instead of, US dollars – in settlement for purchases of GCC production.

Gulf business-to-business transactions would take place on credit terms within a GCC state-sponsored mutual guarantee framework. No interest as such would be paid, but a provision would be made by both sellers and buyers into a “pool”. Service providers formerly known as banks would no longer put capital at risk by creating credit based on it, but would act as service providers in return for a fee, managing the system, setting guarantee limits, and handling defaults.

Settlement of credit would take place in petros, in goods or services by reference to the petro, or in dollars or other currency acceptable to the seller.

GCC use of carbon-based energy is staggeringly profligate and increasing rapidly. Introduction of the petro offers a way in which energy prices may be raised to global levels, and suitable distributions made in the form of a “petro dividend” to consumers and businesses, who would then be incentivized to cut back on carbon-based energy use since this would literally save them money.

Moreover, part of the energy pool could be invested in renewable energy and energy-saving technology: thereby monetizing value which will cost nothing to redeem in the future.

In this way, a new economic route for GCC countries to transition to a post-carbon economy becomes possible.

Asia Times