UAE. Gold will play a prominent role in GCC economies after the proposed monetary union takes place, according to the World Gold Council (WGC) CEO.

Speaking on the sidelines of the event to mark the launch of Dubai Gold Securities, Aram Shishmanian said; Gold will play a prominent role in the GCC monetary union. It may play a role in that basket [of currencies on which the GCC common currency will be pegged]."

Dubai Gold Securities is an initiative of the WGC and the Dubai Multi Commodities Centre (DMCC). It began trading on NASDAQ Dubai on Monday and represents the first Exchange Traded Commodity (ETC) to list on the exchange and the first Shariah-compliant gold ETC in the region.

The major emerging economies of India, China and the Gulf states are seeking to raise their central banks' gold reserve holdings as fears of a sharp depreciation in the US dollar mount.

"In this recession it is India and China which are going to grow at a slow rate, but they are growing," Shishmanian said.

"And they will naturally be looking to gold as part of their reserve asset management strategy, and I see them buying."

Given the traditional weight placed on gold as a store of value it would seem natural that gold should play a part in the new GCC single currency, and perhaps it is inevitable anyway as Saudi Arabia holds some of the world’s largest gold reserves.

The strength of the US dollar is "a temporary phenomenon, if you look at the size of the bailout packages in North America the fact that the US economy may well enter a depression ... there is a real fear of that," Marcus Grubb, WGC Managing Director of investment research and marketing, told Reuters.

"In that scenario I wonder what will happen to the US dollar," he added.

Such a decline would apply pressure on Gulf Arab states which have faced popular pressure to ditch their currencies link to the greenback and switch to fight imported inflation when the dollar was weak.

"It would certainly be (a concern) to all regions pegged on the dollar ... because they have run surpluses, and the Western countries have been in deficits, they have huge accumulation of dollar reserves," Grubb said.

Gulf central banks hold anything ranging between 2%-13% of their reserves in gold. But this may change in future, Shishmanian said.

"Central banks with low reserves of gold are looking to increasing their reserves. They are trying to analyse what the right balance should be. They are becoming aggressive," he added.

"The current wisdom is that if more than 20%of the reserves of a central bank are in gold, it is overweight. But this perception is changing," the WGC CEO said.

Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates and Oman agreed in 2001 to form a European Union-style monetary union by 2010 to boost regional trade. Oman later pulled out.

Kuwait is the only Gulf Arab state to have dropped its currency peg to the dollar, giving it some control over monetary policy.

Gulf Arab leaders in December approved an agreement to create a central bank and single currency for the region to boost trade and strengthen monetary policy.

A single currency would allow the Gulf states to stop pegging their currencies to the dollar and implement independent monetary policy.

Last month legendary investor Jim rogers, the chairman of Singapore-based Rogers Holdings, said the new GCC currency shouldn’t be linked to any other as the region has enough foreign reserves and oil to back it up.

“You’ve got good foreign exchange reserves and a lot of oil” to back a common currency, Rogers said during a banking conference in Dubai.