This week’s shake-up at the United Arab Emirates’ central bank could have a big impact on local financial-system oversight, but the ripples might not spread as far as they normally do when a policy-setting chief is replaced.
Sultan Al Suwaidi, the long-serving central bank governor, was replaced by Mubarak Rashid Al Mansouri via a presidential decree. But while the move could result in changes locally, economists say the U.A.E.’s currency peg to the U.S. dollar means new leadership isn’t a harbinger of new monetary policy stances that could affect global currency markets.
“Monetary policy is determined largely by the U.S. given the existence of the peg, so I suspect a change of this type is a refresh rather an a significant policy event,” said Tim Fox, the chief economist at Emirates NBD, Dubai’s largest bank.
Nonetheless, the change does mark a significant new chapter for the central bank. Mr. Suwaidi became governor at the end of 1991. He’s only the second person to hold that position since the central bank’s establishment in 1981.
The U.A.E. was founded in 1971, but didn’t have a central bank for its first decade.
Mr. Suwaidi is also one of the Middle East’s longest-serving central-bank governors. Only Hamood Sangour Al Zadjali, who was appointed to lead Oman’s central bank a few months before Mr. Suwaidi, has been in his position longer.
When Mr. Suwaidi started, the Gulf War had just ended and the main concern at the central bank was a scandal surrounding the Bank of Commerce and Credit International. BCCI, which counted the Abu Dhabi government as one of its biggest shareholders, was shut down in 1991 amid revelations that it facilitated money laundering and other financial crimes.
Back then, the U.A.E. had more foreign banks than local ones, and the focus was decidedly on foreign investment.
Today, local institutions dominate the U.A.E.’s banking landscape, while the central bank’s focus has shifted toward addressing post-financial crisis challenges.
Under Mr. Suweidi’s tutelage during the crisis, the central bank lent $10 billion to the Dubai government to help fix a liquidity crisis caused by its overheating real estate market. Since then, the regulator has tried to clamp down on a resurgence of unsustainable growth, partly by putting caps on mortgage loans and limiting banks’ exposures to construction and other sectors.
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