The UAE’s not happy

The UAE’s not happy

The nation has expressed ‘reservation’ on the choice of Riyadh for the location of the GCC’s central bank.

May 6, 2009 11:22 by Parinaaz Navdar

Members of the GCC have chosen Riyadh, Saudi Arabia for the location of the soon-to-be-established Gulf Central Bank on Tuesday. Leaders from GCC countries met in Riyadh to decide on a location for the regional central bank.

The UAE, however, “expresses its reservation” on the decision. Nasser Saidi, the chief economist at the Dubai International Financial Centre, suggested that the ego-led political debate on the location of the central bank could be solved by spreading the monetary council’s departments across different states.

Saudi Arabia, UAE, Kuwait, Bahrain, Qatar and Oman agreed in 2001 to form a EU-style monetary union by 2010 to boost regional trade. Council members, however, disagreed on the location of the central bank, leading to possible delays in the creation of a single currency.

In March 2009, the council met to decide on a location for the bank, but failed to agree, forcing member states announce they will work on a revised timetable to issue the new unified currency, the first official admission that the Gulf will fail to meet its 2010 deadline.

If the council had faltered on a decision at the meeting in Riyadh, the credibility of the project could have suffered a serious hit. The council has already faced significant hurdles in its plan to form the union: Oman’s controversial decision to opt out of the union in 2006, and Kuwait’s move to depeg its currency from the US Dollar in 2007, have caused delays in the introduction of a monetary union.

Saudi Arabia’s political clout in the region made it seem like the clear winner. It is the world’s largest oil producer and the region’s biggest and richest economy. More importantly, the Kingdom already hosts the GCC Secretariat.

However, the country has strict travel restrictions on foreigners, which may prohibit some industry experts from doing business with the monetary union.

Making a decision on the location is a significant step forward for the union. This means that a monetary council, the predecessor for the central bank, can begin operating this year.

The next task for the council is deciding on a name for the currency, which could become another political issue with each member state hoping to keep the name of its currency.