MANAMA: In order to achieve critical mass, a GCC monetary union would need to involve all six member states.
"But the four countries still committed to the single currency should not be put off with the idea that two others want to remain outside the union," according to Dr Adam Posen, an external member of the Monetary Policy Committee of the Bank of England and a senior fellow at the Peterson Institute for International Economics.
"Once a single currency has been set up, then it is very unlikely that the UAE would not realise the benefits of joining," he told guests at a seminar organised by the International Institute for Strategic Studies (IISS) -Middle East in a lecture entitled 'Lessons from Europe for Gulf Monetary Union'.
"From the UAE point of view, it would be better for them to be in from the start as that would allow them to be able to play a role in developing the institutions that go with a single currency."
He said that monetary union in Europe offered many cautionary lessons for potential monetary union in the Gulf - notably not to have too high expectations for its impact beyond conferring price stability.
"Unlike the euro area, the Gulf economies are relatively similar and synchronised, so the costs and risks emerging from possible monetary union are low," he said.
"Given the potential members' similarity, however, so are the direct benefits of currency union.
"The key is whether political leadership in the Gulf region can turn monetary union into an advantage for financial development and global economic influence.
"Such advances for the region can be abetted by Gulf monetary union, but is not an inevitable result. The key is the willingness to engage in deeper economic integration across the region.
"The mutual support seen in the region during the global financial crisis is a promising start, especially in comparison to recent experience in Europe."
Monetary union would give the GCC a seat at the top table in the economic community's global institutions, he continued.
"At present, Saudi Arabia is a member of the G20, but as part of a GCC monetary union, Saudi would have a far stronger voice there."
He said that the current monetary peg that GCC countries had enjoyed for some time had worked well but that would not be the case in the future.
A single currency would give the region the ability to break away from the peg. This would not necessarily mean pegging to a basket of other countries but could allow the single currency simply to allow itself to appreciate against the US dollar slowly over a period of time.
"In the future you do not want to be pegged to the US dollar - but you don't want to be pegged to the Chinese yuan either," he said.
"Breaking away from the peg gives you one more tool in running your economy which means that the GCC will no longer be subject to US monetary policy and would have its own control over interest rates to manage its economy."
"Given the level of reserves of the GCC states I cannot see the single currency would have any fears from an attack on its currency," he said.