UAE signs $817m currency swap agreement with Ethiopia

Banking regulators of both countries ink initial deals to boost cross-border transactions and link their payment and messaging systems

Khaled Balama, Governor of the UAE Central Bank, and Mamo Mihretu, Governor of the National Bank of Ethiopia, during the signing of agreements. Photo: CBUAE

The UAE Central Bank has partnered with the National Bank of Ethiopia to establish a bilateral currency swap agreement, aimed at enhancing financial and commercial co-operation between the two countries.

The agreement will bolster the provision of liquidity in local currencies, enabling an effective settlement of cross-border transactions between the Emirates and Ethiopia, the regulators said in a joint statement on Tuesday.

The pact 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.

A foreign currency swap is an agreement to exchange currency between two parties, in which they swap principal and interest payments on a loan made in one currency for a loan of equal value in another currency.

The countries also signed two initial agreements for the use of local currencies in settling cross-border transactions and for linking their payment and messaging systems.

Under the first agreement, the banks will promote the use of their own currencies. It will encourage financial and banking co-operation through knowledge-sharing and develop respective financial markets.

As per the second initial agreement, both parties will work 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. They will also work together in the field of financial technology and central bank digital currencies.

Currency swapping and utilising local currencies to settle cross-border transactions and enhancing the co-operation in interlinking instant payment systems, electronic switches and messaging systems will enhance economic, trade, and investment prospects, said Khaled Balama, Governor of the UAE Central Bank.

“This initiative will also pave the way for more joint business opportunities in the financial and banking sectors,” he added.

In 2022, the UAE’s non-oil exports to Ethiopia reached $210.3 million, with a significant exchange in the pharmaceutical, chemicals and food industries.

The two countries co-operate in areas including agriculture, finance, culture, tourism, government development, food security, renewable energy, trade, investment, industry and advanced technology.

The currency swap arrangement provides an important funding opportunity for Ethiopia and helps diversify the range of currencies at its disposal to facilitate the growing volume of trade and investment transactions expected over the coming years, Mamo Mihretu, Governor of the National Bank of Ethiopia, said.

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 said.