The Central Bank of the UAE (CBUAE) and the Central Bank of the Republic of Türkiye (CBRT) have signed the bilateral currency swap agreement between the UAE Dirham (AED) and the Turkish Lira (TRY) to support their growing financial and economic relations.
The nominal size of the swap is Dh18 million and TRY 198 million. Hence, it is aimed at boosting the local currency liquidity in the financial markets and streamlining the sentiment of cross-border commercial and financial transactions.
Strengthening Bilateral Financial Ties
Besides this swap agreement, the two central banks also signed two memoranda of understanding (MoUs) to deepen collaboration. Below are the details of these agreements:
- First MoU: Focuses on expanding the use of AED and TRY in trade, foreign exchange markets, and remittances. In addition, this MoU also encourages closer coordination on cross-border investment.
- Second MoU: Centers on payment system integration, including linking the UAE’s Aani instant payments platform with Turkey’s FAST system. The cooperation will also explore regulatory alignment and potential collaboration on central bank digital currencies (CBDCs).
UAE Turkey Currency Swap Agreement: Boosting Trade and Reducing Dollar Dependency
This agreement is seen as a part of a wider regional strategy to reduce dependence on hard currencies, like the US Dollar. In addition, it also aims to manage exchange rate risks and enhance economic resilience.
However, analysts suggest that pacts are going to reduce transaction costs and boost the efficiency of businesses operating between the UAE and Turkiye. Hence, a financial expert shared, “By allowing the wider use of local currencies, both nations can reduce the volatility risks and support the trade flows.
Regional Context
The United Arab Emirates (UAE) has been pursuing similar contracts with other trading partners as part of an effort to boost financial partnerships and support its position as a global hub. Moreover, such campaigns provide both nations with the tools to manage currency fluctuations. In addition, it helps them to create the financial channels for traders and investors.
Key takeaways
The currency swap agreement and supporting agreement are a significant step forward in the UAE-Turkey relations. In addition, they support the economic growth and ease closer financial cooperation. Hence, businesses across the regions stand to benefit from more stable and efficient cross-border transactions between these two nations, as the Gulf economies are broadly accepting the local currency trade.
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