UAE currency to remain pegged to US dollar, inflation to subside: UAE CB Governor

At least 70% of the UAE trading partners, with Australia & N. Z., Africa, other Arab countries & other countries added, trade with the UAE is in US dollars or a currency pegged to the US dollar and 50% of all (UAE) imports are denominated in US dollars, said Governor of the UAE Central Bank Sultan bin Nasser Al Suwaidi. "The UAE imported at least 36% of all its imports from Asian emerging economies, 10% from USA & Canada and 4% from GCC countries, this is straight 50% of all imports", he added."69.5% of Japan exports (to UAE ) are denominated in US dollars. Also Imports from the UK should be at least 40% denominated in US dollars.This leaves the Euro Area which represents only 20% of UAE imports, which could be purely denominated in a non-US dollar currency", he explained. "Imports from the UK should be at least 40% denominated in US dollars. This leaves the Euro Area which represents only 20% of UAE imports, which could be purely denominated in a non-US dollar currency." Al Suwaidi was responding to opinions that he said argued that the Dirham fixed exchange - rate peg against the US Dollar is not suitable for the UAE Economy. He made his remarks at the Japanese Symposium which was held Thursday on the occasion of the Japanese Nikkei Media Corporation in Dubai.Al Suwaidi said "inflation in the UAE comes mainly from higher rental rates, which is a temporary phenomena" The UAE Central Bank Governor said "inflation in the UAE is expected to subside as new housing units and office space come to the market in a few months from now." He said UAE banking sector continued to grow in 2007, with total assets liabilities reaching AED 887 billion on 31st March 2007, also total deposits grew and so loans and advances. We expect profitability to grow slightly by the end of the year as seen from results at the end of March."At the moment the UAE banking system is made-up of 25 foreign banks, 22 national banks and 3 more under incorporation. Also we have licensed 3 GCC banks. This buts the total number of banks at 53. in addition we have about 60 bank repetitive offices. Total bank branches are about 690 across the UAE." "The UAE also has 110 exchange houses, to service the growing tourist industry and its switch links about 1800 ATMs in the UAE and 600 in the GCC, through the GCC net" he noted.Discussing the inter-GCC economic and monetary relations, Al Suwaidi said "GCC economy continued to expand due to favorable world economic conditions and buoyant demand for Oil and Gas from rapidly developing countries like China and India and other Asian far eastern countries." "To reduce or eliminate the cost of the exchange cross-rates between GCC countries, we need to peg all GCC currencies against the same instrument. Whether we peg against the US$ or a basket of currencies, it will make no difference as long as we maintain the same peg instrument" Al Suwaidi noted. "This will have to be coupled with special arrangements between our central banks to deal with each other's currency within our economies, to further reduce the cost of exchange cross-rates", he added.

Speaking on the GCC Monetary Union, Al Suwaidi said GCC is not going to follow the example of the European Union and the Euro. We would implement the monetary union in stages, as the common market among the GCC countries will be achieved in stages." "In the first and second stages of the monetary union, he said, GCC will achieve two benefits for our economies." If we achieve the two stages of the monetary union by 2010, that will be enough and sufficient, as there will remain one additional stage only. However, he said, "the last stage of the monetary union will require enacting and implementing similar laws in all the GCC countries, to enable the common market to take its shape. This would enable corporations to establish branches freely across the GCC, it would enable the establishment of new companies, the free ownership of land by all GCC citizens or companies, the free ownership of companies' shares by all GCC citizens or companies, and the free flow of workers." "When all of this is achieved and the common market starts moving, then a unified currency will help it gain momentum and establish a new growth engine, further, the new growth engine will create new jobs for GCC youth citizens. One important objective of the GCC monetary union is to create new jobs through higher economic growth." "The combined GDP of the six GCC countries grew at an average rate of 7% in 2006 reaching around US$ 730 billion, which puts the GCC economy as number 16th in the world, as per Goldman Sachs recent Global Economic Paper. The robust economic performance of the GCC Countries is likely to continue in the few coming years", he said.The UAE GDP, the UAE Central Bank Governor said, "grew at a rate greater than 10% at current prices in the last 10 years. It reached US$ 163.2 billion at the end of 2006. current account surplus was at 17.4% and budget surplus was at 28.8% at the end of 2006." "The UAE Economy will continue to do well, as oil prices are expected to continue to hold above US$ 50 per barrel. As you know, oil and gas exports' revenue even if we include free trade zones exports and re-exports, this still will weigh around 70% of the value of all UAE exports' revenue", he stressed."The UAE will continue to be a trade & business center and a tourist destination in the region, and certain economic sectors will continue to grow", Al Suwaidi stressed. Source