The United Arab Emirates (UAE), the second-largest Arab economy, has withdrawn from Gulf Arab plans for monetary union, state news agency WAM quoted the Central Bank Governor, Sultan Nasser Al-Suweidi, as saying Wednesday. Al-Suweidi said the UAE would keep its dirham currency pegged to the US dollar and monetary policy would otherwise remain unchanged. A UAE statement signaled the country would not seek to prevent the other four GCC countries from forming a monetary bloc. “The UAE extends its best wishes for success to those GCC member states who will join the monetary union agreement,” WAM quoted a foreign ministry source as saying. “The general secretariat of the GCC was officially informed today,” the unnamed official said. GCC Secretary General Abdulrahman Al-Attiya declined to comment on the UAE's decision to pull out from the Gulf monetary bloc saying “Enough has been said about the pull-out.” Muhammad Al-Quwaihis, Shoura member, said it was unfortunate to see the UAE pulling out from the bloc amid great expectations of a unified strong Gulf currency and economy. “We hope that the UAE's decision is just a spur of the moment.” Financial consultant Saleh Al-Thaqafi said the decision was more of political than economic. Riyadh has been selected to host the proposed Gulf Central Bank for a variety of reasons including the big population of the Kingdom where the proposed currency will be widely circulated, the magnitude of the Saudi economy and trade with the world, which is bigger than all other GCC economies combined, he said.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,” the source said. Kuwait, which complicated monetary union plans by dropping its peg to the dollar in 2007, said it remained on board. 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. Gulf policymakers had repeatedly said in recent months that the global financial turmoil and a collapse in oil prices had made achieving monetary union more urgent. Oman had already shaken the project when it opted out at the end of 2006, but the exit of UAE, the world's third-largest oil-exporter, comes as a much stronger blow. “It's a major blow for the single currency project. Oman has withdrawn, Kuwait has a currency basket and now the Gulf's second largest economy has said it won't participate,” said Simon Williams, regional economist at HSBC in Dubai. “I don't think it signals a change in currency regime, or disagreement over the maintenance of the dollar peg.”
