The UAEs decision to withdraw from the GCCs long-planned move towards monetary union surprised many observers last week and left commentators trying to assess its underlying significance. Many suggested that the move amounted to little more than pique at the decision, earlier this month, to site the proposed GCC Central Bank in Riyadh, rather than in either Abu Dhabi or Dubai as had long been suggested. It was also widely noted that the UAE still has no central GCC institution within its borders and therefore, not only was the UAE the logical location for the new Central Bank but it would also draw maximum benefit from the UAEs more internationalist and business-friendly environment.
However, to dismiss the UAEs decision simply as a tantrum is, arguably, to underestimate the sophistication of the countrys political development and its growing diplomatic importance and authority in global affairs. As the UAEs Foreign Minister, Sheikh Abdullah bin Zayed al Nahyan observed this week with surprising bluntness: the UAE does not want to be part of a union that does not recognise the strength of the UAE economy".
A number of commentators have therefore suggested that the main conclusion to be drawn from the UAEs decision to join Oman in stepping away from plans for monetary union is that Saudi Arabias long-held and widely perceived dominance over the affairs of the Gulf may be waning, as its smaller neighbours, especially the UAE, grow in economic strength, diplomatic assertiveness and independent will. Arguably therefore, while Tristan Cooper of Moody's Middle East told Reuters that he thought, The UAE's decision is a blow to GCC (Gulf Co-operation Council) unity more generally and could be interpreted as a sign of how the balance of power between Saudi Arabia and the smaller, richer GCC states has shifted over time, others might argue that the move may indeed be healthy for the GCC: it signals a more evenly balanced distribution of power and influence.
Following the news of the UAEs decision to withdraw, rumours floated that the UAE might rejoin if discussion showed that it would enjoy a more equitable division of involvement and leadership in the monetary union project and the GCC monetary policy making to come. Certainly, many will cleave to the view that the UAE is uniquely well placed to support a new GCC Central Bank. Despite the current economic ills, it continues to be regarded as the most open and tolerant Gulf state in which to do business and this is what attracts the majority of Middle East headquarters for international companies to the country. At the same time, the UAE remains relatively neutral on the diplomatic stage and does not attract the sharp divisions of opinion that frequently characterise economic ventures involving Saudi Arabia. Therefore, selecting the UAE as the home of the Gulf Central bank is in the best interest of the monetary union itself.
Few observers thought that the GCC would be able to deliver on its intention to introduce monetary union in 2010, especially once the present economic storm set in. Accordingly, many have concluded that the UAEs withdrawal from the monetary union project may be only temporary because without the UAE on board, the project will not garish the sufficient momentum and will ultimately be ineffective.