Economic Strategy

Economic Strategy

Feasibility of an Islamic Monetary Union and Iran’s Position: A Strategic Analysis with Emphasis on the Euro Experience

Document Type : Original Article

Authors
Rahman Baizidi 1
Hassan Heidari 2
Ali Fegheh Majidi 3
1 PhD Student in Econometrics, University of Urmia, Urmia, Iran
2 Full Professor, Department of Economics, University of Urmia, Urmia, Iran
3 Associate Professor Economics, Faculty of Humanities and Social Sciences, Sanandaj, University of Kurdistan, Iran
10.22034/es.2026.559019.1905
Abstract
The idea of establishing an Islamic common currency has been proposed since 2003 as a strategy to enhance economic convergence and reduce the dependence of member states of the Organization of Islamic Cooperation (OIC) on the Western financial system. Despite the lack of concrete implementation, the proposal remains of significant theoretical and strategic importance. This study aims to assess the feasibility of forming an Islamic common currency among OIC members, using a mixed approach (comparative and descriptive–analytical) and drawing on the Eurozone experience and the theory of Optimum Currency Areas (OCA), examining the economic, institutional, and political dimensions of the idea. The findings indicate that an Islamic common currency could potentially reduce transaction costs, increase intra-regional trade (40–60%), and mitigate sanctions-related risks, particularly for Iran. However, economic heterogeneity (an 82% disparity in GDP per capita), high reliance on oil revenues (around 60%), and geopolitical rivalries among countries such as Iran, Saudi Arabia, and Turkey are major obstacles. Furthermore, the Eurozone crisis demonstrates that the absence of effective supervisory institutions and shock-adjustment mechanisms can lead to an unequal distribution of benefits between stronger and weaker economies. Therefore, a direct transition to a single Islamic currency is unrealistic, and its success requires a gradual, staged approach based on institutional convergence and complementary monetary arrangements, such as an Islamic settlement currency, which could reduce Iran’s dollar dependence and strengthen its position in the Islamic world economy.
Keywords
Common currency
European Union
Euro
Muslim countries
Subjects
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  • Receive Date 28 November 2025
  • Revise Date 26 December 2025
  • Accept Date 16 January 2026