It is easy to argue that Sultan bin Nasser al-Suwaidi has failed in his role as UAE Central Bank governor using the traditional barometer of monetary policy performance: inflation. In the 16 years Al-Suwaidi has held the post, it has more than doubled.
But it would be wrong to judge Al-Suwaidi in this way. In common with his central bank colleagues across the Gulf, Al-Suwaidi has few tools to control inflation. The massive economic boom sparked by high oil prices and the lack of the independence to act in the best interests of the economy, rather than the government, remove the bank’s ability to tackle inflation.
Whether it is the falling greenback or domestic policy that is contributing most to inflation is immaterial – the central bank governor has no control over either.
But this does not mean Al-Suwaidi is immune from criticism. As the UAE’s Central Bank governor, it is his responsibility to advise the government on monetary policy. But his credibility as an adviser is weakened by some of his views, such as there being no connection between money supply, interest rates and inflation (news page 9).
Despite such unconventional views, Al-Suwaidi remains a hugely respected and influential figure in the region and is one of the drivers of monetary union.
If the GCC wishes to regain momentum on the single-currency project, it will want Al-Suwaidi to stay in his post. He has also just finished preparing a strategic plan for the Central Bank and has plans to further drive the UAE’s reputation as a financial centre. Any departure now would mean that he had been sacked and would be taken by the markets as a sign of a major policy rift, probably sparking even greater speculative currency inflows.
Instead, Al-Suwaidi should be allowed to implement the new strategy for the Central Bank and be evaluated on his ability to keep the UAE as the region’s financial services hub in the face of mounting competition.