By Soren Billing and Tom Arnold
A clash of egos and the decision to base the GCC central bank in Riyadh blamed for the UAE's withdrawal.
The GCC monetary union is "dead" as a result of a decision by the UAE to pull out of the plan, leading UAE economists pronounced on Wednesday
The UAE's move, which came just three weeks after a decision to base the bloc's central bank in Riyadh, was the result of a clash of egos, according to a Saudi expert, who urged Gulf politicians not to let egos get in the way of rational decision.
Dubai-based economist, Eckart Woertz, said that he was surprised by the decision, adding that the monetary union was “dead” without the UAE’s involvement.
In his opinion the decision to withdraw was due to the Saudi capital being named as the headquarters of the regional central bank, Woertz, an economist at the Gulf Research Center, told Arabian Business.
“I would guess they (the UAE) are upset at the decision to set-up the Central Bank in Riyadh instead of Abu Dhabi. There seems to be some connection.
“The monetary union is dead if the second largest GCC economy is not participating. Oman is already out, now the UAE, so it doesn’t justify the effort now and my guess it will not materialise now under these conditions," he said.
Analysts at EFG Hermes also believe that the monetary union project is now “effectively dead”, senior economist Monica Malik told newswire Bloomberg.
However, John Sfakianakis, chief economist at HSBC’s Saudi affiliate, Saudi British Bank (SABB), urged leaders of the remaining four states not to let one country “hijack” the project.
“I think that the egos and the politics should be put aside…I think the UAE should reconsider and not necessarily react in an emotional way,” he told Arabian Business.
“It is unfortunate that the UAE at this point cannot join. They will be welcome to join at a later stage,” he added.
Meanwhile, Standard Chartered bank warned the withdrawal of the UAE from the GCC monetary union represented a serious setback to plans for a single currency, but added that the market impact of the decision would be limited.
It was questionable as to whether the proposed single currency would now go ahead, the bank said in a research note.
The UAE’s decision to pull out follows the withdrawal of Oman from the monetary union plans in 2007.
There were growing concerns in the UAE over the dominance of Saudi Arabia in the common currency area, according to Standard Chartered.
“With the GCC secretariat already based in Saudi Arabia and with the decision to host the GCC central bank in Saudi Arabia as well, UAE concerns intensified,” said analysts Marios Maratheftis and Mary Nicola in the note.
The economic cost of the UAE’s withdrawal should be limited, with UAE trade with the rest of the GCC representing only about 10 percent of total trade, the bank added.
Simon Williams, regional economist at HSBC Middle East, said that the withdrawal of the Gulf’s second largest economy from monetary union was a major blow to the single currency project.
“However, we had long assumed that the single currency would not be launched on schedule at the start of 2010, and the UAE’s withdrawal therefore has no meaningful impact on our view on economic performance or on regional monetary policy,” he said.
..and form something meaningful..and benefiting the Muslim world. Egoistic intentions and slighter tensions led to the disintegration of the Muslim world. Although Khilafa was the most strong formative representation of the Muslim world..but alas they go for the extremes..Democracy and Heirship
Why UAE is excluded from having any of the GCC arms and organization? Saudi should stop acting with ego with other states within GCC and let go the central bank head office to be based in UAE.
I am picturing children in a sand box playing with toys...when some of the children don't get their way they take their toys and go home...
The monetary stability of the GCC for the next 50 years is at stake and like a bunch of school girls, one member goes off in a fit of pique because someone won't be friends with her-incredible. By all means fight over who the governor will be ( The ECB decision was not easy either) but get the thing established first- time is running out before the USD becomes a worthless piece of green paper.
The only logical choice for the bank was Bahrain, which has the infrastructure, workforce and open-ness. Riyadh is one of the world's ugliest, least pleasant living environments, even for beknighted bankers in the compounds guarded by tanks. Its airport is a tip and the roads are third world. Dubai would have been a disaster, and Abu Dhabi too political. Therefore, no bank!
Just because the UAE pulled out doesn't mean the monetary union is dead. The UAE does not deserve to have the GCC central bank based there. We have seen they way they have tackled the current crisis. If anything, Bahrain should host the central bank. Bahrain's current regulator is stronger, and much more proactive than the CBUAE, which is what it needed to host a central bank for the GCC.
Sad News! UAE â€™s decision to pullout is childish mainly for finalization of headquarter location. I believe there should be something behind the curtain. UAE revise the decision for more cooperation in G C C. I strongly believe common currency Gulf Cooperation Council Countries will change the world older.
What a sorry state of affairs. Just because UAE can not have the bank in its country, its throwing its toys out of the pram. Grow up, if you are serious about becoming a regional union put aside your differences and get with the programme. Otherwise you will continue to be marginalised in the real world. Having some pretty buildings does not make you a powerful country. Its all about the combined effort of the GCC. Who cares where the H.O is, decisions are still made collectively.
I believe it is a big mistake to base the bank in Riyadh. Saudi Arabia with all its economic resources has been a terrible administrator. If you have ever visited the Holy city of Makkah, afer seeing the terrible streets and third worlf neighborhoods, you ask yourself simply why. The UAE, on the other hand, with a lot less has created beautiful cities and an excellent infrastructure. I agree with the Emiratees. The bank should definitely not be in Riyadh. A third city should be chosen such as Manama or Muscat. Finally, I hope this problem is solved because the Gulf Countries should have a unified currency.
I believe the UAE leadership has committed a big mistake by pulling out from the GCC Monetary Union which is a great credit for the GCC nation as well as for its unity for 0ne currency that would support its value and further posting the economies of the GCC countries in general. I can't understand this step, while the European nation is progressing in many ways through unity while the Arabs are seeking their own superiority on their brothers and forget the general interest of their nation!.