UAE says best qualified to host central bank

[dracon]

UAE says best qualified to host central bank
May 23, 2009 at 04:46


The UAE's central bank governor said a decision to base a joint Gulf central bank in Saudi Arabia was politically motivated and it ignored his country's financial advantages, state news agency WAM reported.

Meanwhile a Saudi-owned newspaper said high-level efforts were under way to convince the United Arab Emirates, the second-largest Arab economy after Saudi Arabia, to reverse its withdrawal this week from the long-troubled monetary union plan in protest at a May 5 decision to base the joint central bank in Riyadh.

"The decision ignored the competitive advantages enjoyed by the UAE and its banking sector, including the largest number of banks, largest assets and largest deposits in the region," said central bank Governor Sultan bin Nasser al-Suweidi, quoted by WAM late on Friday.

"The UAE also has 50 percent of the Gulf Cooperation Council's international money transfers," Suweidi said.

The daily Asharq al-Awsat quoted an unnamed Gulf source as saying the diplomatic efforts to resolve the dispute were motivated by a "fear that it (row) would reflect on the performance of the Gulf Cooperation Council".

UAE's Foreign Minister Sheikh Abdullah bin Zayed al-Nahayan told Reuters on Friday the Gulf state would consider rejoining the Gulf monetary union if terms change and its neighbours agree to allow the joint central bank to be based in the country.

Sheikh Abdullah had left the door open on Thursday for the UAE to rejoin the euro zone-style single currency, a day after breaking ranks with Saudi Arabia and three other Gulf states, but had not elaborated on what conditions would have to be met.

Asked what terms would have to change, Sheikh Abdullah said that up until last year, only the UAE had been a contender to host the joint body that would be responsible for managing and issuing Gulf currency notes and coins.

"When I say the terms, the UAE was the first country supposed to host the central bank, and we believe we had the right to do so. (It) did not happen," Sheikh Abdullah said.

The UAE's public outcry marks a divergence from Gulf decision-making typically kept behind closed doors to preserve an image of harmony, analysts said.

Analysts have said the UAE decision to quit monetary union marked a protest against Saudi Arabia's dominance over Gulf decision-making.

[Luani]

A Gulf monetary union agreement will be signed June 7 after Saudi Arabia was chosen as the headquarters for the bloc's central bank, the Qatar News Agency reported late Saturday.

The United Arab Emirate's Finance Minister reconfirmed his country's stance to withdraw from the union at the meeting, QNA reports.

The Gulf Cooperation Council will sign a free trade agreement with Europe's Free Trade Association on June 22 in Norway. The Free Trade Association includes Switzerland, Norway, Iceland and Liechtenstein.

[Daliah Mersaban]

Saudi Arabia and three other Gulf states will proceed with their monetary union plan and the location of a Gulf central bank would not be open for renegotiation, the Saudi finance minister said.

"It is not derailed, it will continue. The monetary union will proceed as planned," Ibrahim al-Assaf told news agency Reuters in an interview in Oman on Saturday, less than two weeks after the United Arab Emirates abandoned the single currency project.

"As long as we are moving in the right direction, this is the most important."

The UAE, the second-largest Arab economy, broke ranks with Saudi Arabia, Kuwait, Qatar and Bahrain by dropping out of the single currency plan in protest over the decision to base the Gulf central bank in the Saudi capital, Riyadh.

Asked if the location of the central bank was open for renegotiation, Assaf said: "No. There is a decision that has been taken by our leaders."

The UAE's foreign minister told Reuters earlier this month the Gulf state would consider rejoining the Gulf monetary union if the terms change and its neighbours agree to allow a joint central bank to be based in the country.

Sheikh Abdullah bin Zayed al-Nahayan said the open economy of the UAE, a federation of seven emirates including Abu Dhabi and Dubai, was the most-suited in the Gulf region for the central bank.

The four remaining participants are due to meet on June 7 to sign the monetary union agreement, the Gulf Cooperation Council (GCC) secretary-general said on Saturday.

Analysts have questioned whether the withdrawal of the UAE, the Arab world's largest economy after Saudi Arabia, could derail the long-troubled project. They said the move was a protest against Saudi dominance in Gulf decision-making.

Assaf said one of the key benefits of the single currency would be to reduce transaction costs between the member countries in areas such as trade and tourism.

"You have the cost of transactions when you trade and also you have built in risk of exchange rate variations. Even if you have now most of the currencies are pegged to the dollar, that will not necessarily be the case in the future," Assaf said.

"Having a single currency will eliminate the risk and that tremendously influences decisions to invest, to deposit funds, to do any type of trade."

The single currency would also enable the world's biggest oil exporting region to have a "major currency bloc", he said.

In 2001, the six members of the GCC - a loose political and economic alliance - agreed to set up a monetary union like that of the European Union.

Oman dropped out of the plan in 2006 and earlier this year, the GCC abandoned an initial 2010 deadline for issuing the common notes and coins, saying a joint monetary council would determine a new timetable for issuance.

The four remaining countries have agreed to ratify by December a monetary union deal that their heads of state agreed on late last year.