UAE urged to rejoin GCC currency bloc

Economists say monetary union is vital for region to compete against emerging markets

JEDDAH // The UAE remains involved in planning the GCC monetary union and the four states within the project are still hoping it will rejoin the proposed bloc, says the Saudi Arabian central bank governor.
The comments come as economists stress the importance of the project to help the region compete with other emerging markets.
"The GCC monetary union is an absolute priority for the four countries involved," said Mohammed al Jasser, the governor of the Saudi Arabian Monetary Agency, on the sidelines of the Jeddah Economic Forum.
But the UAE has frequently stated it will stand by its decision in May 2009 to remain outside the monetary union. Oman has also ruled itself out.
But Mr al Jasser said the UAE was still involved in the plans.
"They're very much involved in the decisions," he said. "Their position is up to them and we should give them the time and space to reflect on this. "We hope and pray [they will rejoin]. We will receive them with open arms as they're an integral part of the GCC."
Despite the distraction of unrest in the Middle East and sovereign debt worries afflicting the euro zone, policymakers from Saudi Arabia, Qatar, Kuwait and Bahrain appear committed to the plans.
A desire to learn from the EU turmoil has been a reason given for the lack of clarity about a deadline for the introduction of the GCC common currency.
"Greater integration in many dimensions is a useful and necessary step for small and open economies," said Professor Nouriel Roubini, the New York University economist. "Part of the success of Europe and Asia was close economic development to create an open economic area."
But Prof Roubini said closer collaboration on matters such as politics, trade and labour policies needed to take place first.
Despite its decision on monetary union, the UAE remains committed to other regional efforts to co-ordinate more closely on economics. It has been at the forefront of collaboration on a common market and customs union.
Creating a single currency has been highlighted as necessary to deepening regional financial markets. In theory, loosening fixed exchange rates and integrating monetary policies more closely would help to create a common platform for investment.
Apart from Kuwait, the entire GCC links its currencies to the US dollar. Kuwait pegs its dinar to a basket of international currencies believed to be heavily weighted with the dollar.
"We need to move towards Gulf monetary union," said Dr Nasser Saidi, the chief economist of the Dubai International Financial Centre (DIFC). "I'd like us to develop our own markets so if people want our money they list their stocks, their bonds on our equity markets.
"That is the way for future. China is opening up its markets and people will go and list their companies there. We need to do the same."
It is likely that any single currency will be linked to the dollar at first, but eventually policymakers intend it to operate more autonomously. Debate persists about the dollar's role in the region, as a larger part of the GCC's trade is with fast-emerging markets in Asia.
With the US deleveraging huge public debts, Japan beset by concerns linked to the earthquake and nuclear disaster, and sovereign debt issues in the euro zone, the outlook for all major international currencies remained uncertain, said Richard McCormack, the executive vice chairman of Bank of America.
"My advice is don't do anything in the next few months or so until the world pulls out of the current turmoil," Mr McCormack said.