Finance ministers from several Gulf states have thrown their weight behind plans to launch a single currency that could reshape the region's economic landscape.

They fell short, however, of making a decision on when the new currency would be launched, an acknowledgment that their original, self-imposed deadline of January 1, 2010, was unrealistic.

The draft agreement would have to be ratified by the heads of state from Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates at their annual summit in Oman this year.

Henry Azzam, chief executive officer for the Middle East and North Africa at Deutsche Bank, said: “A monetary union would give the Gulf wider and deeper capital markets and more of an international voice.”

Advocates of the scheme say that monetary union would boost the Gulf's booming economies by luring foreign investment. Some economists envision a borderless boomtown stretching from Oman to Saudi Arabia, in which labour and capital would flow freely, unhindered by local exchange rates. A central bank, closely modelled on the European Central Bank, would deal in a new currency, possibly called the khaleeji (Arabic for “gulf”) and pegged to a basket of currencies, not only the US dollar. The region would be able to set its own monetary policy.

Furthermore, as a unified trading bloc, the Gulf would raise its profile on the world stage, allowing it to leverage its oil wealth collectively.

Detractors argue that it would never work in a region ruled by autocrats. Monica Malik, chief economist at EFG-Hermes said: “The easy bit is what they've just agreed to. The hard part is coming up.”

“You have to take this with a grain of salt. Because the Gulf economies are so similar to each other, the trade possibilities are not as pronounced,” Eckart Wörtz, an economist with the Gulf Research Centre in Dubai, said.

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