Despite the enormous economic wealth of Arab countries and a strategic location influential in the global economy, any Arab currency is not included in the currencies that make up for what is known as “special withdrawal rights” with the International Monetary Fund.
- What are the special drawing rights?
- And on what basis is the currencies that include their basket?
- And why do we not find in these currencies a single currency issued by an Arab state?
In this report, we will try to answer these questions and highlight the backgrounds of the Arab absence from one of the most prominent global monetary tools.
What are the private drawing rights?
Special drawing rights are an international reserve origin established by the International Monetary Fund in 1969, with the aim of supporting the official reserves of member states.
Although it is not a currency in itself, it represents a potential right to obtain freely traded currencies with the member states of the fund, which allows it to enhance its cash liquidation when needed, without direct dependence on the market or its own reserves.
The value of private drawing rights is determined based on a basket of 5 major global currencies, namely:
- The US dollar.
- European euro.
- Chinese yuan (Rambi).
- Japanese yen.
- sterling.
The total of the allocated from these rights until today was 660.7 billion units (equivalent to about 943 billion US dollars), including the largest allocation that took place on August 2, 2021 and entered the implementation space on the 23rd of the same month, in response to the long-term global need to enhance reserves, and to help countries face the economic repercussions resulting from the “Kovid-19” pandemic.
On what basis are the currencies in the private drawing basket?
The International Monetary Fund has developed two main criteria for choosing currencies to join the special drawing basket, with a periodic review mechanism to update its components.
This came in the words of Peter Zolter, head of the Banking Services Department at the Bank of International Settlements, during his speech in front of the Governors of the Institute of Islamic Finance and Finance, on the occasion of the inclusion of the Chinese yuan within the basket of special withdrawal rights.
The first criterion: Export volume standard (known as the “Portal Standard”)
The currency is required to be issued by a state or a monetary union that is a large part of the exports of goods and services worldwide during the past five years.
This condition aims to ensure that the concerned currency plays a central role in the international economy, and reflects a real weight in the global trade movement.
The second criterion: the ability to use free
The currency is required to be:
- Widely used in international payments and transactions.
- Actively circulated in the main exchange markets, enough to allow their circulation in large quantities without great fluctuations in their exchange rates.
- Approved in financial decades, which requires a deep and active financial market around the clock.
It is important to clarify that “free use” does not necessarily mean that the currency is full or free of capital restrictions, but rather indicates the extent of its use and flexibility in meeting international requirements, even if some controls are imposed on capital flows locally.
https://www.youtube.com/watch?v=ellosc7c3i
How does the currency basket speak?
The Executive Council of the International Monetary Fund is conducting a comprehensive review of the special withdrawal basket every 5 years, and it is determined in each review of the following:
- The relative weights of each currency within the basket.
- Financial tools used to calculate the interest rate on private withdrawal units.
Any new currency is added to the basket when the two main criteria (exports and free use) are added, as happened with the Chinese yuan, which was included as of October 1, 2016, after completing these two conditions.
Why is there no Arab currency in the special drawing basket?
As it becomes clear from the previous standards, no Arab currency is included in the special withdrawal basket for the following reasons:
First: The weakness of the Arab share of international exports
No Arab country occupies a position among the 5 largest global exports of goods and services, which is one of the basic conditions.
For example, in 2024, the volume of non -oil exports to Saudi Arabia (the largest Arab economy) reached 515 billion Saudi riyals (or about 137.33 billion dollars), an increase of 13% over 2023, according to the Saudi News Agency.
As for the global economic classification level:
Second: The absence of free use
Most Arab currencies suffer from restrictions on capital movement, weakness in international trading, or limited international acceptance, which prevents them from meeting the criterion of free use.
Arab currencies do not have the technical characteristics or the financial markets needed to qualify them to enter the basket.
Is there a future opportunity for an Arab currency in the box basket?
In theory, yes, it is not possible to exclude the presence of an Arab currency within the basket of special withdrawal rights in the future, but this depends on strict conditions:
- The currency -exporting country should be one of the 5 largest global sources of goods and services.
- Its currency becomes freely used by international market standards.
Until now, no Arab currency meets these conditions, either because of the weakness of foreign trade, due to monetary restrictions, or the absence of active international trading.
note:
However, it is worth noting that some Arab financial institutions, such as the Arab Monetary Fund and the Islamic Development Bank, are aware of private withdrawal rights, that is, they are officially recognized by the International Monetary Fund as parties that can possess and use units, although they are not member states.
The unified Gulf currency .. Will the next Arab opportunity be?
The idea of a unified Gulf currency has been presented for years, specifically since 2010 when the Gulf Monetary Council was established, as a first step towards establishing a monetary union similar to the euro area.
Since then, the Gulf states have begun studying the necessary economic indicators, such as inflation levels, interest rates, public debt, linking payment systems, and harmonizing banking legislation, paving the way for the launch of the currency.
According to multiple reports, the integration of central banking institutions in the six Gulf Cooperation Council countries (Saudi Arabia, Emirates, Kuwait, Qatar, Bahrain, Sultanate of Oman) is currently being integrated, and linking bank payment systems between them.
What are the requirements of the Gulf Monetary Union?
According to the General Secretariat of the Cooperation Council, the monetary union requires:
- Collective political will.
- Homo economic structures between member states.
- Financial and monetary rapprochement within strict criteria, including:
Inflation: The average does not exceed +2%.
Upper Egypt: It does not exceed average of 3 countries +2%.
Foreign exchange reserves: cover at least 4 months of imports.
Budget deficit: It does not exceed 3% of the nominal GDP.
Public debt: It does not exceed 60% for public governments and 70% for central governments.
Banking legislation is compatible.
Merging markets and integrating payment systems.
Standardization of banking control and statistical indicators.
The absence of Arab currencies from the private drawing basket is a direct result of accurate economic standards set by global monetary institutions to ensure the stability of the global financial system.
Despite the current challenges, the opportunity still exists to enter an Arab currency into the basket in the future, provided that a political will, a long -term strategy vision, and a real Arab economic integration, in which free trading and liberalization of financial markets are the basis for construction.
