Think Tank Analyzes Future of GCC Dollar Pegs Amid Growing China Trade

A policy paper by the Middle East Council on Global Affairs examines the GCC currency pegs to the US dollar in light of offshore banking dynamics and increasing trade with China. The research argues that while growing commerce with China weakens the trade rationale for the dollar peg, offshore dollar bank funding keeps oil invoicing tied to the US currency. The author recommends coordinating currency policy across all six GCC states and formalizing liquidity assurances for Bahrain and Oman.

Published October 16, 2026 Source: Middle East Council on Global Affairs Analysis

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Jurisdiction: Middle East
Publication date: October 15, 2026
Official document: What Future for the US Dollar in the Gulf?
Official source: news.google.com

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In an October 2026 policy paper published by the Middle East Council on Global Affairs, Nonresident Senior Fellow Frédéric Schneider examined the structural foundations of the Gulf Cooperation Council's (GCC) currency peg to the US dollar. The paper observed that while conventional views credit dollar-invoiced oil, US Treasury-recycled surpluses, and imported Federal Reserve credibility for the peg, the persistence of dollar dominance is primarily driven by sticky offshore dollar bank funding.

According to the analysis, the GCC's ongoing trade pivot toward China erodes the economic rationale for pegging Gulf currencies to the US dollar, yet it does not automatically dislodge the dollar from oil pricing due to offshore financing mechanisms. Within this context, Schneider assessed the 2026 UAE swap-line episode as an indication of dollar entrenchment rather than monetary drift.

Examining macroeconomic, geoeconomic, and geopolitical factors alongside the differing reserve buffers of the six GCC member states, the paper outlined several policy recommendations. It advised publishing qualitative, non-numerical trigger criteria for any future exchange rate regime reviews to deter speculative attacks, commissioning reserve basket designs, replacing the GCC Monetary Council with a coordinating body comprising all six member states, and establishing formal liquidity assurance for Bahrain and Oman prior to any public announcements.