The Central Bank of the UAE (CBUAE) signed a bilateral Currency Swap Agreement with its Turkish counterpart to help improve trade and investment ties.
The pact has been made for a period of three years, with the possibility of an extension through mutual agreement, as stated by the UAE banking regulator.
The agreement between the countries’ central banks comes after the regional rivals sought in recent months to repair relations that were badly strained in the wake of the 2011 Arab Spring uprisings.
Turkey has swap deals with China, Qatar and South Korea worth about $23 billion.
The size of the agreement between the UAE dirham and the Turkish lira is Dh18 billion ($4.9bn) and 64bn Turkish lira, as stated by the CBUAE.
A foreign currency swap is an agreement to exchange currency between two parties (2 countries), 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 agreement will also allow countries to trade in their domestic currency, making payments at pre-set exchange rates without resorting to the use of a third currency. The agreement was signed by Khaled Mohamed Balama, Governor of the CBUAE, along with Professor Kavcolu, the Governor of CBRT.
The agreement aims to promote bilateral trade and strengthen financial cooperation between the two countries. The investment fund aims to increase support for the Turkish economy and will focus on strategic investments, including energy, health and food.
Turkey and the UAE have recently taken steps to ease badly strained ties. The two countries have seen their ties affected by regional tensions, including the conflict in Libya, where the UAE and Turkey have backed opposing sides in recent years.
Turkey and the UAE signed a total of 10 agreements on energy, the environment, finance, and trade during a visit by Abu Dhabi’s Crown Prince Mohammed bin Zayed (MBZ) to Ankara in November 2021.
The UAE has also allocated a $10 billion (TL 119.6 billion) fund for direct investment in Turkey, the Abu Dhabi Developmental Holding Company CEO announced.
CBRT’s Kavcıoğlu also met UAE officials in Ankara for preliminary talks on the potential swap agreement, and they agreed to improve cooperation. During this meeting, a cooperation agreement was signed between the Turkish bank and the Emirati counterpart.
The central bank has swap deals with China, Qatar and South Korea worth about $23 billion. They encourage trade in local currencies and boost the central bank’s gross reserve.
The currency swap deal is expected to be a significant boost to Turkey’s economy and foreign exchange reserves.
It will also help to improve Turkey’s foreign currency reserves and will ease its large foreign debt burden. The Turkish lira, which has faced increased pressure in recent quarters following soaring inflation and aggressive rate cuts last year, lost about 45 per cent of its value against the dollar in 2021.
Saudi Arabia and Korea have also signed 13 investment agreements covering areas of strategic interest such as clean energy, manufacturing, smart infrastructure and digitalization, capacity building, SMEs, healthcare and life sciences. The event was organized by the Ministry of Investment of Saudi Arabia (MISA).
