The United Arab Emirates still regards United States Treasury bills as a viable investment but may consider diversifying reserves to include China’s Yuan, the UAE central bank governor said Wednesday.
Sultan Nasser al-Suweidi said that the UAE is not considering changing its policy on buying US government bonds after a bill to increase the United States’ debt issuance limit was defeated in Congress on Tuesday.
“For the time being, I do not think there is a strong move in GCC (Gulf Cooperation Council) countries following Asian central bank investment policies,” Mr. Suweidi told reporters.
“It is a treasury department policy. There are guidelines that are reviewed from time to time. If there is a need to move into Treasuries in a bigger way that would be discussed and decided,” Mr. Suweidi added.
The Central Bank of the UAE re-started purchases of foreign securities in May 2010, after reducing its holdings to almost zero following the 2008 global financial crisis, according to Reuters.
Data shows that it held 80 billion dirhams ($22 billion) worth of foreign paper in March, almost 44 percent of its total reserves. This was a slight dip from the 82.1 billion dirhams held in February.
Gulf states, which mostly peg their currencies to the US dollar, are major holders of Treasuries and other US assets.
“In the case of the UAE, you have a US dollar peg and a large share of US dollar trade,” Giyas Gokkent, chief economist at the National Bank of Abu Dhabi told Reuters. “These factors mean that I would expect the currency reserves to remain predominantly US dollar-based for the foreseeable future.”
Mr. Suweidi said that the UAE might consider diversifying reserves into the Chinese Yuan depending on China relaxing its currency controls.
“It depends on the Chinese themselves because they are not yet prepared to allow the Yuan to be a reserve currency,” he said. “If China relaxed controls then that will go to the investment committee within the treasury department of the central bank and then they will make a decision.”
The UAE is in the final stages of approving a law that will allow it to issue its first-ever federal sovereign bonds, according to Reuters.
The Gulf state, the world’s third-largest oil exporter and home to one of the largest sovereign wealth funds, has an annual GDP of $199.8 billion and a GDP per capita of $40,200.
(Eman El-Shenawi, a writer at Al Arabiya English, can be reached at: email@example.com.)