UAE and Ethiopia Sign $817 Million Currency Swap Agreement

UAE and Ethiopia Sign $817 Million Currency Swap Agreement to Enhance Financial Co-operation

Vijayawada: The UAE Central Bank has partnered with the National Bank of Ethiopia to establish a bilateral currency swap agreement. This pact aims to enhance financial and commercial co-operation between the two countries. The agreement will support the provision of liquidity in local currencies, enabling effective settlement of cross-border transactions between the Emirates and Ethiopia. According to a joint statement issued by the regulators on Tuesday, the swap agreement allows for the exchange of their local currencies up to a specific limit. This limit is set at a nominal value of up to Dh3 billion ($817 million) and 46 billion Ethiopian birr.

Understanding the Currency Swap Agreement

A foreign currency swap is an agreement where two parties exchange currency. They swap principal and interest payments on a loan made in one currency for a loan of equal value in another currency. This agreement will facilitate smoother financial transactions and liquidity provision between the UAE and Ethiopia, bolstering their economic ties.

Additional Agreements for Local Currency Use and Payment Systems

Alongside the currency swap agreement, the two countries have signed two initial agreements to further enhance their financial co-operation. The first agreement focuses on the use of local currencies for settling cross-border transactions. This will promote financial and banking co-operation through knowledge-sharing and the development of respective financial markets. By encouraging the use of their own currencies, the banks aim to strengthen their financial systems and enhance economic stability.

The second initial agreement pertains to the linkage of their payment and messaging systems. Under this agreement, both parties will collaborate in the areas of payment platform services and electronic switches. They will interlink their instant payment systems, national card switches (UAESWITCH and ETHSWITCH), and messaging systems, in accordance with the regulatory requirements of each country. Additionally, they will work together in the field of financial technology and central bank digital currencies.

Enhancing Economic, Trade, and Investment Prospects

According to Khaled Balama, Governor of the UAE Central Bank, currency swapping and utilizing local currencies for cross-border transactions, along with enhancing co-operation in linking payment systems, electronic switches, and messaging systems, will significantly boost economic, trade, and investment prospects. This initiative will pave the way for more joint business opportunities in the financial and banking sectors.

In 2022, the UAE’s non-oil exports to Ethiopia reached $210.3 million, with significant exchanges in the pharmaceutical, chemicals, and food industries. The two countries also co-operate in various areas, including agriculture, finance, culture, tourism, government development, food security, renewable energy, trade, investment, industry, and advanced technology.

Strategic Benefits for Ethiopia

Mamo Mihretu, Governor of the National Bank of Ethiopia, highlighted the strategic benefits of the currency swap arrangement for Ethiopia. It provides an important funding opportunity and helps diversify the range of currencies at Ethiopia’s disposal. This will facilitate the growing volume of trade and investment transactions expected over the coming years. The agreements are “a testament to the shared commitment of the two countries to further deepen our already close bilateral partnership, so as to facilitate sustainable development and a prosperous future,” Mr. Mihretu stated.

The currency swap agreement between the UAE and Ethiopia is a significant step towards enhancing financial and commercial co-operation. It will not only support liquidity provision and cross-border transactions but also strengthen economic ties and create new business opportunities. The additional agreements on local currency use and payment systems linkage further demonstrate the commitment of both countries to fostering a robust financial partnership. As the UAE and Ethiopia continue to collaborate in various sectors, this initiative marks a promising future for their bilateral relations and economic growth.