Egypt in UAE currency swap deal to ease currency woes

AFRICAN BUSINESS AND ECONOMYSeptember 28, 2023 at 9:20 PM UTC

The Central Bank of the UAE (CBUAE) and the Central Bank of Egypt (CBE) have officially entered into a Bilateral Currency Swap Agreement that involves the UAE Dirham (AED) and the Egyptian Pound (EGP).

This agreement, which was signed by Khaled Mohamed Balama, Governor of the Central Bank of the UAE, and Hassan Abdalla, Governor of the Central Bank of Egypt, facilitates the exchange of local currencies between the two central banks. The nominal size of this currency swap arrangement is set at up to AED 5 billion and EGP 42 billion.

The Governor of CBUAE emphasized the significance of this agreement, stating, "The Bilateral Currency Swap Agreement between the UAE and Egypt reflects the strong relationship between the two countries and serves as an opportunity to promote cooperation and develop our respective economic and financial markets. In line with the efforts of the UAE and Egypt's leadership to collaborate more broadly across multiple areas, the CBUAE is keen to deepen its cooperation with the CBE to achieve common interests, positively impact the trade, investment, and financial sectors, and enhance financial stability." This agreement is expected to foster economic and financial collaboration between the UAE and Egypt, benefiting both nations.

Key Takeaways

A country currency swap line is a formal agreement between two central banks. This agreement enables them to exchange a cash flow denominated in one currency for a cash flow in another currency, following predetermined terms and conditions. These swap lines serve as a means for a central bank to access foreign currency liquidity from the central bank that issues the currency, typically to meet the needs of domestic commercial banks. Egypt has faced challenges related to a shortage of hard currency. The Egyptian pound has seen a significant depreciation, falling by around half against the US dollar since March 2022, a period marked by increased economic vulnerabilities due in part to the Ukraine crisis. To address these financial difficulties, several Gulf states, including the United Arab Emirates, Saudi Arabia, and Qatar, have taken steps such as making deposits in Egypt's central bank and committing to substantial new investments in the country. These measures are aimed at alleviating Egypt's financial pressures and supporting its economic stability.