Saudi Arabia and three other Gulf states will proceed with their monetary union plan and the location of a Gulf central bank would not be open for re-negotiation, the Saudi finance minister said.
"It is not derailed, it will continue. The monetary union will proceed as planned," Ibrahim Al Assaf said in an interview in Oman on Saturday, less than two weeks after the UAE abandoned the GCC single currency project.
"As long as we are moving in the right direction, this is the most important."
The UAE, the second-largest Arab economy, broke ranks by dropping out of the single currency plan.
Asked if the location of the proposed GCC central bank was open for renegotiation, Al Assaf said: "No. This is a decision that has been taken by our leaders."
One of the key benefits of the single currency would be to reduce transaction costs between the member countries in areas such as trade and tourism, he said.
"You have the cost of transactions when you trade and also you have built in risk of exchange rate variations. Even if you have now most of the currencies are pegged to the dollar, that will not necessarily be the case in the future," Al Assaf said.
"Having a single currency will eliminate the risk and that tremendously influences decisions to invest, to deposit funds, to do any type of trade."
The single currency would also enable the world's biggest oil exporting region to have a "major currency bloc", he said.
Saudi Arabia keeps diverse foreign exchange reserves and is drawing on fixed foreign assets to help cover budget shortfalls in the short to medium term, he said.
Al Assaf also said Saudi Arabia, a G20 member, hopes to gain more influence in the global financial system as it builds oil output capacity despite the global recession and amid possible revisions of International Monetary Fund quotas.
Saudi Arabia's support of its dollar peg does not mean that its foreign exchange reserves are kept in dollars, but rather they broadly reflect trends in the Kingdom's foreign trade and needs, said. the finance minister.
"We do diversify the reserves. It is not necessarily that because we peg our currency to the dollar that we are keeping all our reserves in the dollar. That is not the case," he said.
At the end of April, the Saudi Arabian Monetary Agency (Sama), the central bank, held SR126.45 billion (Dh123.3bn) in foreign exchange and gold reserves, up about 23 per cent from a year earlier. Almost a third of the Kingdom's imports are from Western Europe, about 30 per cent from Asia and 14 per cent from North America, according to 2007 data.
"We have a shortfall in the first five months of the year. Our first line of defence is to withdraw from our surpluses with the central bank," Al Assaf said.
Sama keeps most foreign assets in semi-liquid instruments, including US Treasuries. Net foreign assets have declined by SR162.91bn since last November, Sama data showed.
Deposits with banks abroad fell by 26.7 per cent in April from a November peak, while investments in foreign securities declined by six per cent from October to April, the data show.
"Obviously most of them are invested outside the country. So that's why you have the decline," he said.
"We just tell Sama what we need and they look at the maturities and the different returns and all related issues and they provide us with the funds.
"We have been active in the international financial institutions but we will be even more active. We will be more dominant," he said.
"We have been proactive. With more resources behind us we will be even more influential in the global financial structure."
Saudi Arabia is continuing to invest in upstream and downstream oil projects despite its large excess capacity at present, the Saudi finance minister added.
"Not many countries or for that matter multinational companies are having any meaningful investments at this moment.
"Come the time when the world economy picks up, we will be ready for that and we will be one of the few countries that can provide the world with the needed supply of oil," he said.
Answering a question whether the world economy has sailed through its worst phase, Al Assaf said: "I think so, yes."
"Unemployment in major economies could continue to increase for some time, but the huge collapse in both real production as well as in confidence, I think the worst is behind us."
New Saudi firm plans $5bn investment
Saudi Arabia is exploring opportunities for investments in Europe, Asia and the United States in sectors including technology and auto parts for its new $5.3 billion (Dh19.4bn) investment company, its finance minister said.
The company, Sanabil Al Saudia, has not yet started operations but its owner, the state's Public Investment Fund, is already eyeing possible acquisition targets, Ibrahim Al Assaf said.
The Saudi Government announced last year its intention to set up Sanabil with a mandate to invest in equities, bonds, real estate, foreign currencies and commodities in Saudi Arabia and abroad.
"We are looking at some opportunities from Europe, as well as Asia and the US. We are still in the stages of creating the company but this does not stop us from exploring these investments," Al Assaf said.
"We are looking at technology, also auto parts where we believe we have a competitive advantage when it comes to those components, especially plastic-based products."
The minister declined to say when he expected the fund would make its first investment.
Fannie mae-style company to be formedSaudi Arabia plans to set up a Fannie Mae-style company to buy mortgages from financial institutions and help develop national sukuk and debt markets, Saudi finance minister said.
The company would be formed in conjunction with Saudi Arabia's first mortgage law, which should come into effect before the end of the year, Al Assaf said.
In the United States, Fannie Mae, or the Federal National Mortgage Association, is a primary purchaser of eligible home loans from issuers.
It securitises the loans into mortgage-backed securities and sells them to investors, and was created to establish a secondary market for government-backed mortgages.
"One of the elements of the mortgage laws is to create this institution. It is one of the components," Al Assaf told Reuters, adding the firm, which would be tailored to local market needs, should be formed before the end of the year.
At 62 per cent of the population, home ownership in Saudi Arabia is comparable or exceeds that of advanced markets, but most home financing has up to now been done through traditional family financing means and government loans, Al Assaf said.
"I think mortgage financing will be big."
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