Michael e. Edo *
Only two decades ago the Arabian Peninsula1 was predominantly on a metallic standard. It was not until 1970 that the last country in the area issued its own paper currency. In the past few years, however, against a background of rapidly rising oil revenues and of considerable expansion in commercial banking activity, important developments have resulted in the establishment of seven central banks or equivalent institutions. The present study examines these rapid developments in currency arrangements and banking organization, as well as the relevant financial legislation that has been enacted.
Ali, Anwar, and Said H. Hitti, “Monetary Experience of an Oil Economy,” Finance and Development, Vol. 4 (December 1965), pp. 223-29.
Bloomfield, Arthur I., Central Banking Arrangements for the West Indian Federation, Studies in Federal Economics, No. 2, Institute of Social and Economic Research (University College of the West Indies, Jamaica, 1961).
League of Nations Secretariat, Financial Section, Collection of Monetary and Central Bank Laws, edited by Paul Singer (League of Nations, Geneva, 3 vol., 1932).
Peach, William N., The Currency Problem in [North] Yemen and Recommendations for its Solution (mimeographed, Washington, International Cooperation Administration, January 17, 1961).
Young, Arthur N., “Saudi Arabian Currency and Finance,” Middle East Journal, Vol. 7 (Summer 1953), pp. 361-80 and Vol. 7 (Autumn 1953), pp. 539-56.
Mr. Edo, an economist in the Eastern Division of the Middle Eastern Department, holds degrees from Princeton and Columbia Universities and received his doctorate in economics from Harvard. He has served on the staff of a United Nations Institute for Development and Planning and has been a member of the faculty at George Washington University.
Countries in the Arabian Peninsula are Bahrain, Kuwait, Oman, Qatar, the United Arab Emirates (formerly the Trucial States), Saudi Arabia, the Yemen Arab Republic (formerly North Yemen), and the People’s Democratic Republic of Yemen (formerly South Yemen), of which the first five (which border on the Persian Gulf) are sometimes referred to as the Gulf States.
Other coins impressed with the likeness of Maria Theresa had been issued since 1751. For references on the Maria Theresa thaler, see Loynes (1964, p. 24) and Peach (1961). A comprehensive historical essay on the thaler is found in Hans (1961), available only in German.
Peach (1961, p. 2) states that in North Yemen in 1961 most of the population had little contact with currency during their lifetime. At that level of monetization, the bulkiness of full-bodied metallic coins is not a noticeable disadvantage.
Some foreign paper currencies, including the U. S. dollar and the pound sterling, circulated in the area during the period of the metallic standard.
This gold content of the Indian rupee was established in September 1949, following the devaluation of sterling against the U. S. dollar, in order to maintain the value of the rupee at 1 ½ shillings sterling.
Reserve Bank of India, Report on Currency and Finance for the Year 1958–59 (Bombay, 1959), p. 88. The Reserve Bank of India at the same time issued special Hajj notes for pilgrims going to Saudi Arabia, to prevent the presentation of rupees in the Gulf through Saudi Arabia, where the Indian paper rupee was not a circulating currency.
Oman’s output is expected to increase by 23 per cent in 1975 with production from newly discovered oil fields.
Decree No. 41 of 1960.
Law No. 6 of 1964. At that time the country was called North Yemen.
Law No. 10 of 1964. The South Arabian Federation later became known as South Yemen and is now the People’s Democratic Republic of Yemen.
Finance Decree No. 6 of 1964.
Qatar-Dubai Currency Agreement of 1966.
Currency Decree 1390 (1970).
Aden had become part of the South Arabian Federation in January 1963.
By Law No. 15 of 1968.
The letter d, which formerly represented the sterling penny, was also derived from the denarius.
Its successor (SYCA) was given some additional functions. The YCB was another currency board empowered to extend credit to the government under certain conditions.
Important provisions of the various charters are available from the author on request.
In the Yemen Arab Republic, some board members are appointed by the Minister of Finance.
Thus, the constitution of the South Arabian Currency Authority provided for a nonvoting secretary appointed by the board.
In Barbados, where there is a provision for a general manager whose powers are also derivative, the general manager may vote at board meetings.
The charters of Oman, Qatar, and the Yemen Arab Republic do not specify gold parities for their respective currencies but provide for the establishment of such parities by degree. Oman and Qatar (but not the Yemen Arab Republic) have established gold parities for their currencies.
This requirement was reduced in August 1968 to 50 per cent. Since 1969, the currency board or the central bank has held virtually all official foreign assets in the People’s Democratic Republic of Yemen, as government holdings have been drawn down to finance budgetary deficits.
As indicated above, the EACB had been empowered since 1955 to make fiduciary issues of currency against the debt obligations of the constituent governments.
Before a paper currency was issued in Saudi Arabia, the riyal receipt declined in external value for a period in the mid-1950s.
Where convertible currencies issued by third countries were previously legal tender in a Peninsula country, these currencies, called the “existing currencies,” are often made permissible reserve assets for stated periods. The charter of the United Arab Emirates is an example of such an arrangement.
This is represented by the provision in Bahrain’s charter, Article 29 (d), enabling the central monetary institution to grant advances “secured or unsecured, in exceptional circumstances and with the approval of the Minister” to a bank when such action is necessary to forestall insolvency. There is a similar provision in the Qatar charter.