The news came a few days after WAM reported that UAE Vice President Sheikh Mohammed had expressed “reservation” about the decision to headquarter the central bank to manage this currency in Riyadh, noting that, from the outset, the UAE was intent on basing the operation within its borders.

Saudi Arabia’s King Abdullah responded almost a week later in an interview with Kuwait Arabic newspaper al-Seyyasah in a conciliatory manner. Considering the politeness that came with the UAE’s withdrawal, the king believes this step is not intractable. “The atmosphere for reviewing the monetary union agreement is open and the UAE has an alert leadership … We do not doubt they are keen to maintain a strong Gulf (Cooperation) Council.”

“The coming review before the implementation would resolve what had been disputed,” he said.

The decision to pull out reflects the fact that centralizing and unifying elements of the GCC will be fraught with such problems in the future. Much of this stems from creating an equitable framework for each nation, a hard-to-balance task. The single currency is seen by observers and politicians as a means of creating greater interdependence among the GCC states - the basis for improving political unity.

It also mirrors the formation of the EU single currency, when Germany and France wished to foment greater unity and mutual reliance. Nevertheless, while monetary union is an economic objective, it is also an optional tickbox on the political checklist of goals designed to form greater unity within the GCC, says Marios Ma-ratheftis, chief economist of Standard Chartered Middle East. “No matter what happens to the common currency, we’re still part of the GCC and we’re willing to cooperate with our GCC neighbors - and that’s the right way to go,” he says. “Political cooperation is essential, and monetary union is not necessary to achieve that.”

There is also the issue that most of the GCC states have parity with each other on exchange rates anyway, as all (except Kuwait) are pegged to the greenback. Kuwait removed the dinar from the dollar peg in favor of a basket of currencies in 2007, creating further wobbles over monetary union at the time. Yet this is a tactic other Arab nations would do well to adopt, argues Paul Krugman, professor of economics at Princeton University and Nobel laureate in economics.

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