U.A.E. Pulls Out of Gulf Monetary Union Project

[Enivid]

The United Arab Emirates, the second largest Arab economy, has pulled out of the planned monetary union of oil-rich Gulf states, dealing a blow to their goal of establishing a European-style single currency.

“It’s like France saying it wants to pull out of the euro,” Eckart Woertz, an economist with the Dubai-based Gulf Research Center, said today in a telephone interview. “The single currency is dead.”

The U.A.E. has expressed reservations that Riyadh, the Saudi capital, was chosen on May 5 to host the Monetary Council, a precursor to a common central bank. Little progress prior to that decision had been made since September when central bank governors approved the monetary union agreement.

The Gulf Cooperation Council 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. A single currency would enable Gulf states to pursue a monetary policy that is independent of the U.S., as all except for Kuwait peg their currencies to the dollar. It would also help support a fully integrated economic zone.

Kuwait plans to “go ahead” with the Gulf single currency, Kuwaiti Finance Minister Mustafa al-Shimali said in a phone interview today. He added that Kuwait has not received “anything official” on the U.A.E. pulling out.

From Bloomberg News.