UAE withdraws from gulf monetary union plan

[Naveed Yaseen]

DUBAI: The United Arab Emirates, the second-largest Arab economy, has withdrawn from Gulf Arab plans for monetary union, possibly paralysing a project that has faced hurdles for almost a decade.

The UAE is the second country in the six-member Gulf Cooperation Council (GCC) to withdraw from the single currency plan after Oman, a smaller economy. But a senior Gulf source said four states remained committed to the union.

“Saudi Arabia, Kuwait, Qatar and Bahrain are committed,” said the source, who spoke on condition of anonymity. “Monetary union will be weakened but it is also a loss for the UAE because it is losing a competitive advantage of being part of a bloc.”

Kuwait, which complicated monetary union plans by dropping its peg to the dollar in 2007, said it remained on board.

UAE Central Bank Governor Sultan Nasser al-Suweidi said the UAE would keep its dirham currency pegged to the US dollar and monetary policy would otherwise remain unchanged, according to the state news agency WAM.

The UAE and four of its neighbours, including Saudi Arabia, had planned to converge their economies with a view to eventually launching a common currency.

But the UAE, one of the major candidates to host a joint central bank, expressed reservations over a May 5 decision to base it in the Saudi capital Riyadh.

In the statement on the UAE withdrawal, WAM said it was the first country to ask to host the joint central bank in 2004 and did not host any other GCC body.

“I think this is more a statement of protest over the decision that was taken on choosing Saudi Arabia,” said Mohammed Yasin, chief executive at the UAE’s Shuaa Securities.

“It is more over the way it was chosen, not where it was chosen. I don’t think it will have any affect on the economy or the stock markets.”

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