UAE links FX union pullout to cbank location
Dubai, May 20, 2009
A United Arab Emirates government official said on Wednesday his country's withdrawal from a Gulf unified currency plan would weaken the union and linked the move to the bloc's decision on the location of a joint central bank.
'This is a matter of principle. But at the same time the UAE has made a huge compromise and showed flexibility by deciding not to block the monetary union agreement as a whole,' the official told Reuters on condition of anonymity.
The UAE expressed its reservations over the choice of Saudi Arabia to host the central bank earlier this month, but did not use its right to veto the planned union, which requires a unanimous decision to be enacted.
Asked if the UAE decision would weaken the Gulf Cooperation Council monetary union, the official said: 'Definitely, if you take away a third of the monetary union this will weaken it.'
The official said the UAE's open economy would have made it the best choice to host the central bank.
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.
Bahrain is the only country to have ratified the deal, the GCC secretary-general Abdul-Rahman al-Attiyah said this month.-Reuters