The decision by the UAE to pull out of the GCC monetory union serves as a serious blow to the bid for unified regional currency. This decision by the UAE follows the announcement by the GCC Secretariat that Riyadh would be the location of the future central bank, for which, the UAE had explicitly voiced its disapproval.
Oman had already opted out of unified currency proposal in 2006, choosing to continue a unilateral economic policy, while Kuwait depegged from the dollar in 2007.
Although the UAE has opted to stay away from unified currency, it is still believed that monetary union will go ahead as planned between the remaining four states, namely, Qatar, Kuwait, Bahrain and Saudi Arabia.
A source at the UAE government agreed that UAE could have prevented the vote to award Riyadh the GCC central bank, but kept away from doing so, as the remaining four nations could continue with their plans for monetary union.
“The UAE made a compromise choosing not to block the monetary union plan. We expressed reservation, rather than using our right to block the entire agreement,” the source said.
The decision to withdraw from the monetary union by the UAE, was taken after careful reflection and is in no way born out of the simple need to score a point against the decision, the government sources confirmed.
A summit held on 5th May had drawn a conclusion that majority of GCC nations agreed to Riyadh being home to new monetary council, a precursor to a GCC central bank. However, the UAE expressed reservations about basing the central bank in Riyadh.
According to the UAE authorities, the country enjoys an open banking sector, in an open and tolerant society, which operates as a major nexus of commercial activity in the region. Also, UAE has a natural inclination towards political and commercial consensus within GCC, but, the bylaws governing the definitive location of the proposed central bank has been dodged.
According to the UAE authorities, the decision by the UAE to stay away from the monetary union, will have the same impact on the efficacy of the union, as the absence of participation by Germany or France to the European monetary union.
UAE is concerned that the Saudi banking policies would affect the rest the region, as the Saudi Arabian Monetary Agency has always shied away from structured-investment banking products and services, putting Riyadh at odds with other Gulf economies, at times.
Morever, the Gulf economies have stayed away from the idea of abandoning their currency pegs to the dollar. Saudi Arabia has always defended the peg and is expected to resist any attempt to delink.
The UAE authorities feel that UAE is best suited to host the central bank, as majority of the regional and international banks, industrial companies and insurance companies operate from UAE. Moreover, the free-market economy of UAE is a winning card. Abu Dhabi would be best-suited to house the union, as the country is a trading hub for import-export activities. Several of the region’s imports are offloaded in UAE seaports and are trucked across the desert to rest of GCC.
All said, despite its withdrawal, UAE wishes the project well and will continue to show its commitment to common enterprises, political, financial and social in future GCC enterprises, the government sources emphasized.
Posted on 22/5/2009 Social Bookmarking
     
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