The transmission of monetary policy is constrained by an underdeveloped local capital market, although we expect to see some growth in local debt and sukuk issuance over the next four years. Nevertheless, we expect the peg to be maintained over the medium term. We estimate reserve coverage (including government external liquid assets) at 52 per cent of the monetary base and six months of current account payments in 2019. Rules of thumb for the adequacy of reserve coverage in relation to these measures are 20 per cent and three months, respectively.

We also consider the more qualitative aspects of the GCC currency arrangements. At a time of already significant change and regional geopolitical instability, politically conservative regimes such as the GCC are unlikely to decide to increase uncertainty about their economic stability by amending this fundamental macroeconomic policy. We expect these concerns will out-weigh the potential economic benefits of de-pegging.

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