The UAE on Wednesday officially pulled out of the proposed Gulf monetary union, jeopardising the future of the region's single currency aspirations.
Sources in the UAE Central Bank told Gulf News that the move follows reservations about the recent decision to locate the Gulf central bank in Saudi Arabia.
"The UAE has decided not to be party to the accord on Gulf monetary union between the Gulf Cooperation Council nations," the official WAM news agency quoted a foreign ministry spokesman as saying.
"The general secretariat of the GCC was officially informed today," the unnamed official said.
Commenting on the decision, Central Bank Governor Sultan Bin Nasser Al Suwaidi told WAM there will be no change in the UAE's monetary policy.
"The UAE's monetary policy will not change and will maintain its method of openness," Al Suwaidi said, adding that the dirham will remain pegged to the dollar.
The UAE was the first country to submit an application to host the GCC Central Bank in 2004, as part of the arrangements to join the monetary union.
The UAE had expressed reservations over the monetary union after an informal GCC meeting in Saudi Arabia on May 5 decided that Riyadh, which is home to the GCC headquarters, would host the future Gulf central bank.
A UAE Central Bank source said the UAE had been told initially that it would host the bank.
"The work on the headquarters [in Abu Dhabi] was done and the place was ready to start operations," he said, adding that the UAE was "taken off guard" by the summit's decision to base the bank in Saudi Arabia
Economists, analysts and GCC officials said that the UAE's decision was directly linked to the decision to locate the central bank in Saudi Arabia.
"This decision seems to be linked to the decision to locate the GCC Monetary Council in Riyadh," Tristan Cooper, chief regional economist at Moody's Investors Service, said.
"It remains to be seen what the ramifications of this decision will be for the UAE's bilateral relations with Saudi Arabia, but clearly it is not positive."
The GCC in 2001 agreed to form an EU-style monetary union. Oman pulled out in 2007. Saudi Arabia, the largest Arab economy, Kuwait, Qatar and Bahrain are still part of the project.
"I think the monetary union will now be on hold for some time," Dr Fuad Sajwani Al Lawati, former Central Bank of Oman vice- president and member of the Economic Committee at the Majlis Ashura, told Gulf News.
As soon as I read this, it was obvious to me that the UAE's feelings were hurt.. They were promised to host the headquarters of the future Gulf Central Bank... but behind their back it was decided that Riyadh would host the Central bank, so the UAE officials said Enough is enough.
Very good decision. It shows character and honour!
it's a brave thing what the uae did, and have in mind the uAe is not the first one out of the monetary union - oman did so in 2007. but i think the monetary union between ksa, kuwait, bahrain and qatar will be weak without the financial acumen of uae, especially dubai
i am amazed at this news. in this case i don't think the project will succeed . Saudi wants all control, so it's good decision UAE backed out. I hope it doesn't affect UAE a lot, just like Uk is not very affected because it's not part of the Euro countries
There is an Arab proverb one guy told me: Arabs agreed on not to agree.