The United Arab Emirates central bank has made no decision yet on diversifying its foreign exchange reserves and the current USD ratio is appropriate, the bank’s Governor Sultan Nasser Al Suweidi said yesterday.

However, he told Reuters in an interview that a shift remains the bank’s long-term objective.
“The board is making the decision but it has not taken the decision yet,” he said on the sidelines of a conference in London.

“The UAE economy is evolving and it is important to diversify (Forex reserves). We need to diversify, not for any reason except that we have to move away from just (having) a single currency. Otherwise you get caught in the wrong corner. Diversification is a long-term objective.”

The central bank of the UAE has been keeping markets guessing about its plans to convert 10 per cent of its reserves from US dollars to euros, announced earlier this year. UAE central bank foreign reserves, which stood at $23 billion in December, are held almost entirely in US dollars.

“We do have a high ratio of dollars but this is appropriate because the US dollar is the currency for international trade and for investment,” Al Suweidi said yesterday.

The central bank controls only part of the foreign exchange reserves of the UAE. Other major holders include the investment arms of the emirates’ governments.

Some analysts say official Forex reserves make up less than 10 per cent of Gulf Arab government holdings.

The UAE is one of six members of the Gulf Cooperation Council (GCC) along with Saudi Arabia, Kuwait, Qatar, Bahrain and Oman.

SOURCE: Khaleej Times Online

JON’S COMMENT
Another bearish sign for the US Dollar as many countries now plan to diversify their Forex reserve away from the Dollar toward Euros or even Gold.