By Soren Billing and Tom Arnold
UPDATE 2: UAE notified GCC of decision on Wednesday, adding that the dirham will remain pegged to the US dollar.
The UAE has pulled out of the proposed GCC monetary union and said it will keep its currency pegged to the dollar, three weeks after it was announced that the bloc’s central bank will be based in Riyadh.The General Secretariat of the Gulf Cooperation Council (GCC) had been officially notified on Wednesday of the decision, state news agency WAM reported, citing an official source at the Foreign Ministry.
Sultan Nasser Al Suwaidi, governor of the UAE central bank, said that the country will maintain its expansionary monetary policy and that the dirham’s exchange rate will remain pegged to the US dollar.
Earlier this month the UAE said it had reservations about the decision by GCC leaders to place the precursor to a regional central bank in Riyadh.
However, as recently as Sunday, GCC Secretary General Abdul Rahman Al Attiyah said the country remained “supportive” of the project.
“The UAE was the first country to officially request, in 2004, the hosting of the planned Central Bank of the Gulf Cooperation Council as part of the arrangements for [entry] into the Council's monetary union,” the WAM statement pointed out.
“The UAE does not currently host any organisation or body affiliated with the Gulf Co-operation Council,” it added.
Eckart Woertz, an economist at the Gulf Research Center in Dubai, admitted he was surprised by the decision, adding that the monetary union was “dead” without the UAE’s involvement.
The UAE’s decision to withdraw was due to Riyadh being named as the headquarters of the regional central bank, he said.
“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."
The UAE would now focus on the GCC customs union, which was launched by the six Gulf states in 2003 as part of an economic integration process, he added.
“We have to see how the customs union is going ahead and there has been considerable increases in intra-GCC trade in recent years, so the monetary union was of secondary importance anyway compared to the customs union.”
Moves to revise the 2010 deadline for the monetary union were made in March when the General Secretariat announced that its joint monetary council would decide on a new timetable.
EGO war is on.. well i do forward my sympathy to UAE because they were reponsible for such a landmark to be turned into reality though naturally one who invents a thiong wont his name to branded there to.. or in this case host the GCC bank.. sadly that was not the case its my belief that this definetly resulted in them backing out but thn agn it does feel like a school playground if i aint made the captain i aint playing..
I am not sure I agree that the placement of the central bank is a huge issue. Saudi is a much larger economy, so it does not seem a huge surprise for such an important institution to go there. I think there are better reasons as to why the UAE would exit the system. Being free of GCC currency union does give the UAE freedom to control its own monetary policy. An adjustment to the dollar peg for example to devalue the AED would be a big boost to tourism and other industries like real estate. It would effectively make prices more attractive to foreigners, and make the UAE more competitive.
With massive economic base and region's greatest land Saudi Arabia, its imperative that UAE asking for the headquarter. What we have seen in recession, that Saudi Arabia's hardly have any effect on global recession whereas all articles related to Dubai and UAE in recent time questions whether this country survives. I have seen that businesses in UAE based on influx of people even in good times but during off business days from June to September there is slow down in business and its difficult for retail sector and struggled to stand. When it is so seasonal how come just having vertical cement structures UAE asking a bigger pie. If any monetary union to exists it should be based with Saudi Arabia the regional power. If this country opts out, it will hardly any impact on Saudi Arabia which has no problem in coming years for business, etc because they do not depend on artifical population but of their own. The massive cities in Saudi Arabia from Abha to Tabuk and from Dammam to Yanbu, it is difficult to compare with any regions of UAE.
Actually, I think it does make sense that the UAE has pulled out. The European Central Bank is in Germany not because it was the biggest economy but because it has the best central bank and financial infrastructure. Saudi Arabia does not have the human capital and physical infrastructure the UAE has. Even more, visa regulations and gender discrimination in KSA would have been a real impediment for the normal functioning of a Central Bank. It also pays to think that in an Union, institutions do not go to the largest partner... where is located the European Commision? Brussels... not Berlin, not in Paris, not in London. Sometimes is better to not do the things than doing wrongly. Good decision.
The false princes lost the war. Now hide behind the dunes.
UAE's frustration is understandable, but Head quarters of GCC central bank is a minor issue, and it should not affect an important initiative like common currency It just shows how fragmented the Arab and Muslim world is. If GCC wants to have its say in world affairs, then it should portray a single face.
I agree to Paul's comment below. The ego in such issues cant be the real reason. After all, KSA is the big brother to UAE. I D assume it would ahve somthing to do with the base the GCC monetary would use for the unified currency. If UAE and Oman can decide to devaluate their currency against the dollar (Not likely), they would reap the benefits of haveing tourism flocking in. Only on this basis, it is a good decision.