We have a few economists among us, lets see what they have to say about this new initiative of the Gulf states.
From BBC: Gulf states push for single currency
Six Arab Gulf states have turned to the eurozone for advice in how to successfully launch a single currency.
At this week’s meeting of Gulf central bankers in Riyadh, the six Arab states vowed to press ahead with plans for monetary union and the launch of a single currency.
And they decided to seek the help of the European Central Bank, which rolled-out euro notes and coins at the start of the year with very few glitches.
Dr Henry Azzam, chief economist at Jordan Investment Trust Group, said that monetary union should be relatively easy to achieve in the Gulf since all six currencies are already at least partially pegged to the dollar.
“It’s a political rather than an economic decision,” Dr Azzam told BBC News Online.
“All it needs is for someone at a very senior level in Saudi Arabia to take the decision to push forward,” he said.
Vulnerable economies
The countries need to create one central bank for the region, decide who has the power to set monetary policy, agree on what to call the new currency and better coordinate fiscal policy, he said.
The Cooperation Council for the Arab States of the Gulf was created in 1981 in order to boost the economies of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates.
The Gulf states were concerned about the vulnerability of their economies, due to their heavy dependence on oil wealth.
They decided that cooperation and eventual integration would increase the stability and power of the region.
Just talk?
Steve Barrow, a currency stategist at Bear Stearns in London, said the key advantages of monetary union in the Gulf states were greater price transparency and the elimination of transaction costs, thereby enhancing trade.
But some of the advantages behind the creation of the euro would not apply to the Gulf.
Arab currencies are only very thinly traded and would never rival the supremacy of the dollar, and the dollar peg already protects them against the volatility of minor currencies.
“Monetary union is in vogue at the moment,” Mr Barrow told BBC News Online, referring to similar ideas that have been raised in both Asia and South America.
“But it is likely to take a very long time for the plans to move from the talking phase to reality.”
The states have given the European Central Bank six months to produce a study on the best way for them to proceed.
Global fears
Hamoud al-Zadjali, governor of Oman’s central bank, opened the meeting in Riyadh by urging all the states to exert more effort in ensuring that the timetable is met.
And he warned of the “dangerous political and economic developments” taking place in the rest of the world, and the negative impact on gulf economies.
As an important step towards economic integration, the states have brought forward the launch of a planned customs union to the start of next year.
They aim to achieve monetary union by 2005 and launch a single currency by 2010.