UAE and Egypt Renew AED 5 Billion Currency Swap Agreement for Five Years

The Central Bank of the United Arab Emirates and the Central Bank of Egypt renewed their bilateral currency swap agreement worth five billion dirhams, equivalent to 1.36 billion dollars, for a period of five years. The UAE Central Bank said in a statement that the agreement aims to enhance trade relations and financial cooperation between the two countries, and contributes to supporting financial stability in both nations.

The agreement was signed in Abu Dhabi by Khaled Mohamed Balama, Governor of the Central Bank of the UAE, and Hassan Abdalla, Governor of the Central Bank of Egypt. The equivalent value of the agreement in Egyptian pounds is 69 billion pounds, or approximately 1.32 billion dollars, according to the statement. The two countries had concluded their first currency swap agreement in September 2023 for the same value, meaning that the renewal maintains the previous facility level without expansion.

A currency swap is an agreement between two parties to exchange two currencies at a predetermined rate, involving the exchange of principal and interest payments. It typically aims to provide foreign currency liquidity and ease pressure on the local currency, as the central bank in need receives hard currency from its counterpart in exchange for its local currency instead of resorting to foreign borrowing or selling reserves.

Khaled Balama stated that the agreement reflects the shared commitment of both countries, contributing to financial stability and facilitating trade and investment between them. He added that it represents an important step in efforts to promote the use of local currencies in bilateral settlements, thereby strengthening the resilience of the financial systems in both countries. This move comes as part of UAE efforts to safeguard its financial system amid escalating regional uncertainty, as the UAE and Bahrain signed a 20 billion dirham agreement in April to enhance monetary cooperation and support trade and investment, indicating an expanding approach to using these instruments to support trading partners and reflecting a UAE desire to fortify its network of regional economic relations.

What do these terms mean?

Currency Swap: An agreement between two central banks under which they exchange local currencies for an agreed amount for a specified period, later returning the amount; it helps a country secure hard currency without resorting to external borrowing. Bilateral Settlement: Importers and exporters between two countries pay in their local currencies instead of the dollar, reducing reliance on foreign currencies.