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UAE: any inclusion of Yuan in reserves is long-term issue
Any decision by the United Arab Emirates to include the Chinese yuan into the UAE central bank's official foreign currency reserves would be the result of a long-term process, the bank's head said on Friday.
March 24, 2012 3:46 by kippreport
In January, the UAE signed a three-year currency swap agreement with China worth 20 billion dirhams ($5.45 billion) to boost two-way trade and investment.
Asked if the central bank also considered making the Chinese yuan a part of its official reserves, Central Bank Governor Sultan Nasser al-Suweidi said: “This is a long-term issue.”
“It is a long-term agreement so it will take time to implement it. So we are patient,” he told reporters on the sidelines of a financial conference in the UAE trade hub Dubai.
China, a relatively modest importer of UAE crude, has signed a series of currency swap agreements in recent years with key trading partners to boost the use of the yuan for the direct settlement of international trade.
In February, China imported 777,476 tonnes of crude from the Emirates, a 45 percent jump from a year ago, according to the Chinese customs data.
Suweidi reiterated his long-standing view that the rate of bank lending growth in the UAE, one the world’s top five oil exporters, was appropriate given economic developments.
“Bank lending is going at a reasonable rate. The rate has been close to 3.5 percent, which is reasonable under the circumstances,” he said.
He described the central bank’s monetary policy as “good”, when asked about the possibility of shifts in monetary policy. He did not elaborate.
The central bank of the UAE, which pegs its dirham to the US dollar, has kept its key repo rate at 1 percent since 2009.
The 2008 global financial crisis exposed bank lending excesses in the oil-reliant UAE economy, bursting a property bubble and triggering a $25 billion debt restructuring of Dubai World in 2010.
However, most UAE banks have large capital cushions by international standards and the central bank has said they had only minor exposure to Europe, hit by the euro zone debt crisis.
Despite some recovery, bank lending remains sluggish in the UAE. Provisions against bad loans rose to a record 55.3 billion dirhams in December, up 25 percent from a year ago, central bank data show. (By Martin Dokoupil and David French)