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Still no decision on Euro switch

The UAE government has elected to defer a decision to convert 10% of its foreign currency reserves into Euros. The announcement was made as the board of directors of the Central Bank revealed that they required more time to study the merits of such a move.

The UAE government has elected to defer a decision to convert 10% of its foreign currency reserves into Euros. The announcement was made as the board of directors of the Central Bank revealed that they required more time to study the merits of such a move.

However, they hinted that the issue might come under consideration again at next month’s meeting of the governors of central banks and monetary agencies of the GCC member countries. This month’s meeting focused on the prospect of a single currency, and monetary union by 2010.

“We have postponed buying euros until the next month’s board meeting. The board may decide there’s a 50-50 chance of buying euros,” explained Central Bank Governor Sultan bin Nasser Al Suwaidi. “We have not decided against it - the final decision is only postponed.”

“We have already less then 2% of our foreign currency reserves in the euroland currency, for day to day purposes,” he added. “It also includes reserves in other currencies like yen... 98% of our reserves are in US dollars.”

The Central Bank’s foreign currency reserves amount to around US$23 billion, and the majority of the reserves of most Gulf central banks are in dollars, to which their own currencies are often pegged.

However, the Central Bank governors of other Gulf nations admitted they were considering buying euros.

Kuwait Central Bank Governor Shaikh Salim Abdul Aziz Al Sabah said his country held substantial reserves in euros. “Kuwait bought euros a long time ago although it is still investing in US Treasuries,” he said.

Qatar Central Bank governor Shaikh Abdullah Bin Khaled Al Attiyah also said that his bank had bought euros. Under the state’s regulations, he said, Qatar can hold as much as 40% of its reserves in euros, and no more than 90% of its reserves in dollars.

Al Suwaidi also revealed that the governors were determined to foster sustainable growth, even at the expense of the region’s current extraordinary economic expansion. He reiterated the importance of recent moves to raise the interest rates on Certificates of Deposits, arguing that such a rate rise acted as a safety valve on economic growth. He confirmed that, were the US Federal Reserve to lower its interest rate, the UAE would continue to raise its own in response.

On the issue of opening up branches of national banks in GCC countries, Al Suwaidi said that governors were prepared to defer that decision to each member country, who would give permission to allow opening of branches according to local laws and economic circumstances.

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