The UAE's surprise decision to pull out of a EU-style monetary union planned by regional oil producers is being seen as an expression of the country's unhappiness at not being chosen to host the Central Bank of the six-nation Gulf Co-operation Council (GCC), analysts said yesterday.Importantly from my POV, the introduction of a GCC currency would have few implications for the world economy as the countries involved have planned to keep a peg to the US dollar:
"A hint of the UAE's unhappiness at the decision to locate the headquarters of the GCC Central Bank in Riyadh was conveyed the very same day the announcement was made when the UAE expressed its 'reservation' over the choice," an analyst pointed out. The decision to locate the GCC Central Bank headquarters in Riyadh was announced on May 5 by the GCC Secretary-General Abdulrahman bin Hamad Al Attiyah.
He said Riyadh, which already hosts the GCC Secretariat, was selected as the location for the GCC Monetary Council - a precursor to the GCC Central Bank. A high-ranking UAE delegation was in Riyadh for the 11th GCC Consultative Summit and the team returned to the UAE the same day and expressed its 'reservation' over the decision...
Analysts said logical contenders for the proposed GCC Central Bank's location would be financial centres such as Dubai and Bahrain. They pointed out that the location of the GCC Central Bank headquarters is vital as, with the backing of the immense oil wealth and other assets of the cash-rich GCC behind it, the bank could become one of the world's largest banks and its ability to transact across the GCC as well as with the rest of the world, would be a critical factor.
Since the new currency is to be pegged to US dollar, as all GCC currencies are (with exception of the Kuwaiti Dinar, which is pegged to a basket of currencies), there will also be few changes regarding the monetary policy in the UAE in relation to its neighbouring states - if the 'Al Khaliji', as the new money is rumoured to be named, ever comes into being.So there you have it: what we have here is a pointless tantrum over a pointless currency union that will peg to the US dollar as virtually all GCC states already do. Why do they even bother?