Almost half of companies in the UAE think a common Gulf currency would be good for business, despite the country's decision to pull out of the monetary union project last year.
Just 18 per cent of businesses asked by the polling firm YouGovSiraj in The National's annual economic survey said a unified currency would be bad for business. Another 34 per cent said currency union would make no difference. "I think it's good for business," said John Sfakianakis, the chief economist at Banque Saudi Fransi. "It's easier for businesses to transact across borders if they have one common currency. It's easier for travellers to go from Kuwait to Saudi Arabia or Kuwait to the UAE with one currency rather than exchanging currencies at the airport. It helps businesses, it helps regional tourism and it makes things easier."
Gulf monetary union has been contemplated for years, but institution-building began only last year, when leaders of the project decided to site the GCC central bank in Riyadh. The UAE decided to back out of the the single currency shortly afterwards. Economists say the union has not moved quickly forward - it is progressing in stages, with the single currency to be introduced by about 2015 - in part because having a single currency and a regional central bank are not priorities in a part of the world where most currencies are pegged to the US dollar at fixed exchange rates. Kuwait is the only GCC country that does not have a dollar peg, having dropped its link to the US currency in 2007 in favour of a basket of currencies.
And while businesses in the UAE may favour a single currency because it would eliminate the exchanging of money in cross-border transactions and make regional investment in stocks, bonds and other securities easier, a union without the UAE would not necessarily give Saudi Arabia and the other countries involved a significant economic edge. The new currency would be likely to be pegged to the dollar, giving it little distinction from the dirham, at least from the perspective of investors outside the region.
The central concern for the UAE if it decides to stay out of the union, economists say, is that it might send the message that the region is not operating as a bloc. "The UAE's decision to exclude itself from the currency union has an impact because the UAE is the second-largest economy," Mr Sfakianakis said. "It is also a vote of confidence for it to be a participant and show its support for a common currency. If and when it decides to participate, it will be a confidence-booster, and those countries that are in the currency union should take note of the UAE's position and should offer a compromise for the UAE to participate."