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.
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