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THE Gulf's leading economists are set to meet next month to discuss the location for a common central bank, as plans for a unified currency slowly take shape.
Five Gulf Co-operation Council (GCC) have been working behind the scenes to bring the initiative to fruition despite a 2010 deadline for the Gulf Arab single currency being extended.
The global economic crisis has also thrown up more challenges in a move experts believe would boost trade between Bahrain and its neighbours.
Shahin Vallee, a strategist in emerging markets at bnp Paribas, which has a base in the kingdom, believes "Bahrain could be a good option" for the location of a common central bank.
Mr Vallee added: "There has been a delay because, although there is political will, there have been some economic challenges in 2007 and 2008 when inflation fears were bringing doubts about the whole currency union plan. But beyond that, the timeline set in the first place was hardly realistic.
"There is still to this day limited work on a real convergence programme and very few things have been done to build the blocks of a monetary authority at the regional level. If anything, this crisis has exacerbated the differences between different GCC countries and will make the integration towards a single currency more difficult."
At present he believes the economic implications of introducing a single currency is 'broadly neutral' at face value if the GCC unit was still to be pegged to the US dollar at the same level. However, he added: "What could be positive is the consequence of increased regional trade within the GCC facilitated by the single currency and the potential role that Bahrain could play in an integrated financial system across the GCC."
He believes, apart from political considerations, the GCC would need to concentrate on diversification and convergence issues and act as "one" before it became an obvious decision to adopt a single currency, which is currently not the case.
BNP Paribas is one of the key international banks in Bahrain employing 320, out of which 60 per cent are Bahraini. As a leading player it operates from its regional hub in Bahrain to reinforce its expanding network of branches in Gulf countries.
The idea of a unified currency for GCC was not pulled out of a hat but was always been a long term aim of the bloc.
The creation of the Gulf Arab single currency was formally declared soon after the formation of the GCC in Article 22 of the Council's Unified Economic Agreement which stated that: "The six-member states shall seek to coordinate their financial, monetary and banking policies and enhance co-operation between monetary agencies and central banks, including an endeavour to establish a common currency in order to further their desired economic integration".
GCC rulers were likely to meet in May to discuss the location for a common central bank, according to Oman's Central Bank Executive President Hamood Sangour al-Zadjali. After a location was decided, policymakers would decide whether the currency would be pegged to the US dollar.
The 2010 deadline for a Gulf Arab single currency will be extended and a new timetable set, senior Gulf officials said recently, in the first official recognition that monetary union plans would be delayed.
''The physical currency, it will not be in 2010,'' Naser Al Kaud, deputy assistant secretary-general of the GCC, told reporters. "The monetary council will be established and one of its tasks will be to set the new timetable for the introduction of the physical currency."
Oman dropped out of monetary union plans in 2006 and Kuwait dropped its dollar peg in 2007, throwing convergence efforts into disarray in an oil-exporting region where currencies have long been pegged to the dollar.
