LONDON: The Arab states of the Persian Gulf have agreed to launch a single currency modelled on the euro, hoping to blaze a trail towards a pan-Arab monetary union.

''The Gulf monetary union pact has come into effect,'' said the Kuwaiti Finance Minister, Mustafa al-Shamali, speaking at a Gulf Co-operation Council summit meeting in Kuwait City. The move will give the hyper-rich club of oil exporters a petro-currency of its own, greatly increasing its influence in the global exchange and capital markets and potentially displacing the US dollar as the pricing currency for oil contracts. Between them the Gulf countries amount to a regional superpower with a gross domestic product of $US1.2 trillion ($1.3 trillion), some 40 per cent of the world's proven oil reserves, and financial clout equal to that of China.

Saudi Arabia, Kuwait, Bahrain, and Qatar are to launch the first phase of the single currency next year, creating a Gulf Monetary Council that will evolve quickly into a full-fledged central bank.

The United Arab Emirates is staying out for now - irked that the bank will be located in Riyadh, at the insistence of Saudi Arabia's King Abdullah, rather than in Abu Dhabi. The UAE is expected join later, along with Oman.

The Gulf states remain divided over the wisdom of anchoring their economies to the US dollar. The Gulf currency - dubbed the ''gulfo'' - is likely to track a global exchange basket and may ultimately float as a regional reserve currency in its own right.