U.A.E. Pulls Out of Gulf Monetary Union Project

The United Arab Emirates, the second largest Arab economy, has pulled out of the planned monetary union of oil-rich Gulf states, dealing a blow to their goal of establishing a European-style single currency.
“It’s like France saying it wants to pull out of the euro,” Eckart Woertz, an economist with the Dubai-based Gulf Research Center, said today in a telephone interview. “The single currency is dead.”
The U.A.E. has expressed reservations that Saudi Arabia’s capital Riyadh was chosen as the location of the planned common central bank. Saudi Arabia is the largest Arab economy.
The Gulf Cooperation Council in 2001 agreed to form a EU- style monetary union. Oman pulled out in 2007. Saudi Arabia, Kuwait, Qatar and Bahrain are still part of the project.
U.A.E. central bank Governor Sultan bin Nasser al-Suwaidi said the country will keep the dirham’s peg to the dollar. All GCC currencies are pegged to the dollar except the Kuwait dinar which is linked to a basket of currencies.
“The U.A.E. has decided not to be part of the Gulf monetary union agreement,” a Foreign Ministry spokesman in Abu Dhabi was cited as saying by the state-run news agency WAM. “The U.A.E will continue to maintain its expansionary monetary policy and will keep the exchange rate of the dirham pegged to the dollar,” al-Suwaidi told WAM.
Central Bank
The U.A.E. offered in 2004 to host the common central bank, as it does not have any body affiliated with GCC on its territory, al-Suwaidi said.
“Emotions and egos are prevailing over rational decision- making and the U.A.E. is voicing its dissatisfaction by going against the union,” said John Sfakianakis, chief economist at the Saudi British Bank in Riyadh. “An important participant is now out. But it doesn’t mean the union is coming to an end, just some convincing has to be done to get them, the U.A.E, to re- enter. I hope they re-enter and emotions will not prevail.”
The U.A.E. officially notified the secretariat of the GCC of its decision to pull out, the Foreign Ministry spokesman said. Nasser al-Kaud, the GCC’s deputy assistant secretary- general for economic affairs, declined to comment.