Pegging the currency to the dollar, with the possibility of a free float after the first five years, was the right decision. The US is the region's single largest trade partner. Oil and gas, the GCC's principal exports, are priced in dollars. America has the world's largest economy. The GCC invests heavily in US government debt.

Critics of the dollar peg cite the slump in the dollar's value since 2003, the importance of Europe and China and the potential benefits

of breaking the economic link between the

GCC and the US. But dropping the dollar will hurt America. And now, when Gulf states are hoping to re-engage Washington with the Middle East peace process, is not the moment to snub the US.

The second easiest decision is selecting the right dollar value. Qatar's per capita GDP, an indicator of productivity, is more than $50,000. Oman's is just over $10,000. This is because the value of Qatar's per capita oil and gas exports is five times greater than the sultanate's. Under a dollar peg, an increase in the relative value of the US currency will have a larger positive impact on Qatar than Oman. A fall would raise import costs and have bigger implications for the average Omani than increasingly wealthy Qataris.

There are also big differences within individual countries. In Saudi Arabia, the booming Eastern Province hosts Saudi Aramco, the world's biggest oil corporation. The poorer southwest still depends on agriculture and local light industry that could be boosted by a weak exchange rate.

Any exchange rate choice will produce GCC winners and losers. Maintaining the status quo around the present Saudi riyal/dollar value of $3.75 is the simplest solution. But there is a case for a one-off revaluation of the Saudi currency. Something closer to $1=SR 3.50 may make long-term economic sense, perhaps after a realignment among GCC currencies to deal with the recent differences in inflation rates.

After setting the parity, the decisions get tougher. Logic suggests the bank should be based in Riyadh, capital of the largest economy. But if it is not, then it would make sense for the governor to be a Saudi Arabian.

Hamad al-Sayyari, who has headed the Saudi Arabian Monetary Agency (Sama) since 1983, is the world's longest-serving central bank governor. There are other worthy candidates. But this is where the easy part ends. Currency union demands co-ordinated fiscal and monetary policies. Europe established convergence

criteria to ensure the euro's launch was not derailed by disparate inflation, balance of payments and budgetary trends. That requires governments to sacrifice national development goals for regional ones.

GCC central banks are well advanced with programmes that will allow banks to operate within what will be a unified, electronic GCC financial system. But a single currency requires consistency in banking regulations and supervision. Monetary co-ordination also eventually demands a coherent GCC approach

to capital markets.

Finally, there are the questions that no-one has yet publicly debated. To whom will the Gulf central bank be accountable? The European Council of Ministers and the European Assembly increasingly act as a continental executive and legislature. Can the GCC avoid establishing similar bodies once the GCC central bank

is born?

What is true is that time is running out. You probably need at least three years from announcing the details of the single currency until it is launched. This suggests that a credible convergence programme must be in place by the start of 2008 if the deadline is to be achieved. The temptation to postpone will grow with every passing month. But the final prize will