GCC to have common currency by end 2009

The Gulf Corporation Council has approved an agreement to create a central bank and single currency for the region to boost trade and strengthen monetary policy. Monetary union is a key step on the road to the as yet un-named single currency. There has been talk of 'Gulf Dinar' or even 'Karam', which means 'honour' in Arabic.

Of the six GCC countries, Oman had already announced, back in 2006, that it would not join a single currency (See Oman opts out of the Gulf's single currency monetary plan) and in 2007 Kuwait, alone out of the GCC countries, re-pegged its currency to a basket of currencies rather than the US dollar.

On 17 September 2008, GCC's finance ministers had hammered out a draft agreement on the monetary union, which involves a single currency and a unified Gulf monetary authority, two key steps toward economic integration.
 
The draft deal has been referred to heads of state for approval at the ongoing Muscat summit.

Convinced by the success of euro zone, the Gulf leaders decided in 2001 to set up a monetary union and adopt a single GCC currency in 2010, a key step toward full regional economic integration.

Issues to be hammered out
One of the major issues with regards to the common currency is the exchange rate of the member states, which has yet to be agreed upon. Going by the experience in the European Union in adopting the euro, there could be discord over this.

The location of the central bank is also one of the issues that requires attention. Inability to decide on the location of the regional central bank, which will be independent from the governments of member countries, has all along been an obstacle to the common currency plan. The United Arab Emirates, Qatar, Bahrain and Saudi Arabia want to host the bank in their country.

Oman has been explicit in its desire not to join the monetary union. In fact Yousuf Bin Alawi, Oman's minister in charge of foreign affairs said Oman has no intention of joining the Gulf monetary union. The Arabic daily Al Bayan, quoted Bin Alawi as saying that "Oman will not join the monetary unity project in 2010, not even in 2100".

However, he also said that Oman would not obstruct the monetary union among other GCC states, despite the issue requiring total unanimity .

Taxes could be in offing
Although a pan-GCC progressive tax structure is inevitable, it will take months of preparation before taxes are actually levied.

Plagued with volatile oil prices that have plummeted to a fourth to where they stood six months ago, the GCC states plan to impose taxes on individuals and businesses.

So far the absence of income tax has been the largest attraction for corporations and individuals in the region. All the GCC economies have aggressively competed with each other to open free zones where the companies are not taxed. Dubai, and in fact the entire UAE, has particularly led the way.