'Limited gains' from Gulf single currency

Member states

The members of the Gulf Cooperation Council took a first step towards monetary union by launching a customs union on 1 January.

The states are hoping that increased economic integration will boost trade in the region and lessen their dependence on oil revenues.

But the IMF found these benefits would be far less substantial in the Gulf than those achieved in the eurozone or other potential common currency areas.

"The general conclusion is that the benefits do not seem too large, but that neither do the costs," the IMF's policy discussion paper concluded.

Oil dependent

The elimination of transaction costs between regional currencies is the key gain of a common currency.

But trade between the six Gulf states is mostly non-oil related, and makes up less than 7% of the total value of the region's exports.

By comparison, intra-regional trade in the eurozone accounts for just over half of all exports.

And because five out of six of the currencies are already pegged to the US dollar, the reduction of exchange rate risk is also limited.

Long-term goal

The IMF says the Gulf states must strive to minimise costs in order to make proceeding with the common currency worthwhile.

And it warns that each country must try to avoid major macroeconomic imbalances which would require them to resort to emergency measures such as printing more money.

The Cooperation Council for the Arab States of the Gulf was created in 1981 and covers 31.1 million people with a GDP of $341bn.

Its members are Saudi Arabia, Bahrain, Kuwait, Oman, Qatar, and the United Arab Emirates.

The Gulf states are aiming to achieve monetary union by 2005 and launch a single currency by 2010.