ABU DHABI // The UAE is committed to implementing UN sanctions against Iran, the governor of the Central Bank has said.
The UAE will remain outside the Gulf monetary union and will keep the dirham pegged to the dollar, said Sultan al Suwaidi.
Mr al Suwaidi was speaking at a press conference on the sidelines of the GCC summit. As he spoke, the Gulf’s leaders began arriving in the capital and were escorted to Emirates Palace for a two day summit presided over by Sheikh Khalifa bin Zayed, President of the UAE and Ruler of Abu Dhabi.
When asked whether the UAE has reconsidered joining the Gulf’s monetary union, Mr al Suwaidi said: “There is nothing new.”
“The UAE hopes for the GCC countries that have embarked on the monetary union and who are putting in place plans for a unified currency all the best,” he said. “We do not see as appropriate in the present time any proposal to join the common currency.”
Mr al Suwaidi’s stance confirmed the GCC summit would not feature a fundamental change in the UAE’s policy.
The UAE abandoned the monetary union in May 2009.
Countries should find more “commonalities” between their economies before getting to the point of having a monetary union, he said.
“A unified currency should be the last step, so we should take our time,” he said.
Critics have said trade between the Gulf countries remains hampered by restrictions and citizens do not enjoy freedom of economic activity in neighbouring Gulf countries.
Mr al Suwaidi also said the UAE plans to continue pegging its currency to the dollar.
“We are still adamant that pegging the dirham to the dollar is the best policy and this is a consistent policy for the UAE,” he said.
The Gulf countries all peg their currency to the dollar, except for Kuwait which pegs it to a basket of currencies. Critics say pegging exposes the Gulf countries to the fluctuations in American currency.
“The choices are limited and the US dollar is still the best choice for our country,” he said.
“At least 60 per cent of our commercial dealings are in dollars, but there are other sides also,” he said. “A lot of investments are in the US and the US is known to have the best instruments for investment.”
“UAE’s foreign trade is 60 to 70 per cent in dollars,” he said.
Mr al Suwaidi reiterated the UAE’s standing policy that it would implement UN sanctions on Iran, which were imposed in June.
“We impose and we abide by UN Security Council resolutions,” he said. “The UAE has had a good track record in implementing the resolutions, so I think we will implement these resolutions to the minute details, and we understand the requirements,” he said.
He declined to say how much the UAE’s economy will be impacted by the sanctions on Iran, one of the country’s largest trading partners.
“I think it puts pressure on all countries in the world so you have to take it as it comes,” he said of the economic impact of the sanctions.
But he said the government would not order companies to abide by unilateral sanctions imposed by the US and the European Union, which are often seen as tougher on Iran.
“Bilateral sanctions and laws are left for different economic sectors – to look whether these will affect them in one way or the other for themselves,” he said, adding that as part of the government, the Central Bank is only responsible for implementing UNSC resolutions.
Local Iranian traders complain that even their legitimate trade is being throttled as fearful banks deny them access to credit for worry that they might be shut out of the US market as a result of the sanctions.
The sanctions on Iran have added significance as the Islamic Republic meets with Security Council representatives this week for negotiations.
The governor acknowledged that there are legitimate businesses being affected, but predicted the problems would be resolved as businesses seek advice from the government on what trade activities with Iran are permitted.
“Of course mistakes downstream take place,” he said. “They happen but we are confident that these mistakes will be corrected by the private sector on their own.”
Mr al Suwaidi also said the UAE was used to the rocky security situation in the Gulf. Security concerns, from the rise of Al Qa’eda in Yemen and the stand-off over Iran’s nuclear programme are prominent concerns for the Gulf leaders gathered in the capital.
“When did we have quiet years? From the days of the Iran-Iraq war till today, for 25 years”, said Mr al Suwaidi.
“It is difficult of course to operate in these circumstances but we have been operating for many, many years, we are used to it and our strategic relations with neighbouring countries are excellent.”
Mr al Suwaidi tried to allay fears that the banking sector was greatly exposed to Dubai’s real estate bubble.
“Investments in the real estate sector did not come from the banking sector in the UAE only. It came from different sectors,” he said.
UAE law only allows banks to invest less than 20 per cent of deposits in real estate.
“Don’t think all these projects that you see are financed by the banking sector in the UAE. No,” he said. “We are okay in terms of potential pressures.”
Total customer deposits in the UAE’s banks have increased from Dh923 billion at the end of last year to Dh1.053 trillion in the first 10 months of 2010, signalling increased confidence in the UAE’s banking system, said Mr al Suwaidi.