The majority of the Gulf Co-operation Council (GCC) states are striving towards achieving some form of monetary union by 2010.

Is it vital that the GCC should rush headlong to meet the 2010 deadline for a common currency?
Bahrain, UAE, Saudi Arabia, Kuwait, Qatar and Oman are working towards monetary union, although Oman plunged the project into crisis last December, saying it would not join in 2010.
Bahrain too expressed scepticism saying the target would be a “challenge” to achieve.
What do GCC nations gain from a monetary union? The IMF evaluates that a unified GCC could attract more foreign direct investment. Investors would view the region as a single entity for investment and a single currency with an independent central bank would result in more transparent economic decision-making.
The Gulf countries need to establish a common institutional framework in order to realise the monetary union by 2010, the IMF said.
While efforts to enhance policy coordination would be beneficial to the GCC countries, important preconditions remain to be fulfilled including the need to better define monetary policy objectives, the use of more uniform monetary instruments, the establishment of the institutional framework required to improve the coordination of monetary policies, and formation of the planned customs union.
A GCC monetary union could introduce to the world a powerful GCC global vehicle currency.
GCC countries would benefit from reduced transaction costs and the elimination of exchange rate uncertainty. The advent of the GCC currency would also help develop GCC-wide capital markets where companies can raise capital at favourable rates.
The introduction of a common currency will also be associated with the pursuit of a common monetary policy, and more disciplined fiscal policies by the member countries.
But despite GCC economies being by and large similar, forming a monetary union will not be simple. The launch of a common currency will require a good deal of preparation and pose a gigantic logistic challenge. It involves lowering and equalising the deficit of the various country budgets, standardising interest rate levels and coordinating taxation policies.  
The GCC countries have initially concurred on five criteria by which each country will be assessed prior to the adoption of a common currency. The criteria have been drawn from Euroland’s Maastricht formula. Four out of the five criteria are almost identical covering the budget deficit, government debt, inflation and interest rates. The additional GCC criterion covers forex reserves in months of imports.
Oman now says the criteria, including capping budget deficits at three per cent of gross domestic product, could constrain it as it seeks to diversify its economy away from dwindling oil revenue.
The budget deficit and debt criteria are being easily met with budget surpluses in all six countries and low debt levels. Even in Saudi Arabia which in 1999 had a debt burden in excess of 100 per cent of GDP this has come down sharply to an estimated 29 per cent of GDP by the end of 2006.
On the interest rate and inflation criteria the currency pegs broadly ensure that inflation and short-term interest rates move in line. Bahrain, Kuwait, Oman and Saudi Arabia meet both the criteria based on 2005 and projected 2006 data while Qatar and the UAE have not met the inflation criteria since 2003. However, they do continue to meet the interest rate criteria.
There is also a school of thought that questions the very need for a GCC common currency. It says robust regional trade and volatile currency fluctuations among trading partners are common reasons for countries to join a currency union — neither of which exists in the GCC.
None of the GCC currencies, except the Saudi riyal, floats on the open market. The majority of the central banks — Bahrain, Oman, Qatar, Saudi Arabia and the UAE — peg their respective currencies directly to the US dollar, and the exchange rates remain within in a tiny band around their pegs.
Another potential benefit of monetary union - greater international exchange rate stability - would also be of little relevance. A common GCC currency would remain subject to oil price fluctuations and carry insufficient international weight against the US dollar, the euro or the yen. Thus, while a single currency is economically achievable its benefits to the GCC would be minimal, some economists say.
Apart from technical issues, the central bank governors have not yet been able to decide where to house the GCC central bank, or what the new currency will look like.
But, in spite of the hitches and detractors there are several positives that cannot be overlooked. First and fundamental is the political advantage. The single currency would push the GCC into cooperating more and more in seeking solutions to common economic problems.  
Open and free markets, commercial accountability and unified customs tariffs would become mandatory if the GCC is ever to achieve some measure of its potential for influence globally.
Economic diversification and integration would be the key. If that happens, the new currency would unleash powerful market forces certain to transform the way people of the GCC live and work and the Gulf will be strong base for companies striving to compete globally.

talking business
K S Sreekumar