DUBAI: The United Arab Emirates has decided not to join the planned GCC monetary union, official news agency WAM reported yesterday quoting a Foreign Ministry official.
The UAE has officially notified the GCC secretariat of its decision to pull out of the planned Gulf monetary bloc, the official added.
In 2001, the GCC had agreed to form a EU-style monetary union. Oman had pulled out in 2007. However, Saudi Arabia, Kuwait, Qatar and Bahrain are still part of the project and hope to have a common currency in place by 2010.
“The UAE wishes the countries that will join the agreement all success, and will always work for the best interest of GCC citizens and play its role as a founding country of the GCC, to achieve the council’s mission and targets,” WAM added.
“The UAE’s record in implementing GCC decisions underscores its belief in joint GCC action,” the source said.
UAE Central Bank Gov. Sultan Nasser Al Suwaidi said the country’s monetary policy will not change and will maintain its method of openness, adding that the UAE dirham will remain pegged to the US dollar.
All GCC currencies are pegged to the dollar except the Kuwaiti dinar, which is linked to a basket of currencies.
Saudi Arabia, the UAE, Kuwait, Qatar and Bahrain, have tried for almost a decade to negotiate a single currency that some policymakers hoped would eventually be freely floated globally.
But a project that would have enabled the world’s biggest oil-exporting region to act as a single economic force in the world is now weakened without the Gulf’s second-largest economy, officials and analysts said yesterday.
“I think it is dead. I don’t think it will go ahead now and if it surprisingly does, it will not be worth much,” Eckart Woertz, economics program manager at the Gulf Research Center, said of the European Union-style project.
“This is like if you imagine France withdrawing from the euro. Britain’s (withdrawal) was like Oman, a blow but not a nail in the coffin. The UAE is like France.”
Gulf officials said the four other states were still committed to the project, although they also acknowledged that the project had been weakened considerably.
The creation of a single currency among the Gulf’s oil exporters, combined with the increasing importance of the euro and China’s yuan, could be a blow to the status of the US dollar as the world’s leading currency.
Apart from Oman’s decision not to join, Kuwait threw the plan into disarray when it decided in 2007 to sever its dinar’s peg to the US dollar, contravening an agreement to keep the pegs intact until monetary union. “Kuwait and other Gulf Cooperation Council countries are still committed to this agreement and we are all going ahead with what we’ve agreed on,” Kuwaiti Finance Minister Mustapha Al-Shamali said.
A Gulf official, requesting anonymity, added: “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.”
Saudi Arabia has been steadfast in its commitment to its dollar peg although neighboring Kuwait is unlikely to support re-linking its currency to the dollar, analysts said.
— With input from agencies
