Connected Capitalism: Political Economy of Finance in the UAE

Abstract

The growth of the United Arab Emirates (UAE) as a state, and the expansion of its finance sector, in its offering of financial intermediaries, products and expertise, have not necessarily been in coordination. In fact, the notion of economic statecraft is relatively unchartered in the UAE. Economic statecraft is, as David Baldwin described, efforts by governments to influence other actors in the international system, relying primarily on resources that have a kind of “market price” or fungibility in terms of money or financial exchange.¹ The UAE has yet to tap its finance sector as a resource of foreign policy, precisely because it is a sector divided: divided by ownership between ruling families; divided in interpretations of proper lending regimes; and understandings of the role of finance in creating public and private wealth. Financial statecraft, as economists Benn Steil and Robert Litan have defined it, concerns those aspects of economic statecraft that are directed at influencing capital flows.² While traditional economic statecraft concerns trade privileges, tariffs, sanctions and foreign aid, financial statecraft involves capital controls, financial sanctions on non-state actors, issuing debt and monetary policy, especially with respect to depending on foreign currency as a peg or in local circulation (dollarization). The UAE is a major trade hub, an exporter of oil, a center of regional finance, and the beneficiary of a stable pegged currency to the US dollar.