UAE is considering changes in its banking law to give more teeth to the central bank in shaping monetary policy.
While the central bank has control over interest rates currently, the country’s currency is pegged to the dollar that results in rate movements imitating US policies.
On top of that, most of the banking decisions are still made by the government with the country’s president Sheikh Khalifa bin Zayed al-Nahayan having the ultimate sign-off power.
Reuters quoted central bank governor Mubarak Rashid al-Mansouri as saying: "The law aims to empower the central bank board in determining the direction of monetary policy in consistency with the requirements for the national economy."
Mansouri’s comments come as central banks around the world are preparing for Basel III, a set of voluntary regulatory framework on bank capital adequacy, stress testing and market liquidity risk that is likely to come in effect in 2018.
IMF and the World Bank are working on making central banks more independent.
Headquartered in Abu Dhabi, UAE’s central bank currently overlooks commercial banks and money supply. The banking law of the country has not been overhauled since 1980.
Once the new changes are in place, the central bank will get the responsibility for ensuring financial stability. However, banking executives are skeptical about the move as they feel the authority will still rest with the government.
Image: THe bank currently looks into commercial banks and money supply.Photo: courtesy of Achilver.