Two initial agreements were also signed by the two countries before the currency swap.
The Central Bank of the UAE partnered with the National Bank of Ethiopia on an agreement to establish a bilateral currency swap. The focus of the agreement is to enhance commercial and financial cooperation among the two countries. The initial deal is signed by the banking regulators of both countries to boost cross-border transactions and also link their messaging and payment systems.
The deal between the two countries will strengthen the provision of liquidity in local currencies. Further authorising a settlement of cross-border transactions that is effective between Ethiopia and Emirates said the regulators in a joint statement.
The deal will allow the local currencies to be exchanged up to a certain specific limit. This limit is set at a nominal value of up to Dh3 billion ($817 million) and 46 billion Ethiopian birr.
The agreement between the two parties of foreign currency is to exchange currency in which the principal and interest payments are swapped. This is done on a loan on a loan made in one currency for a loan of equal value in another currency.
“This initiative will pave the way for more joint business opportunities in the financial and banking sectors” said Khaled Balama, UAE Central Bank Governor.
Two initial agreements were also signed by the two countries. The agreement came together for the usage of local currencies in order to link their messaging and payment systems and also settle cross-border transactions.
The banks agreed to promote the use of their own currencies under the first agreement. It will enhance banking and financial cooperation through exchange of knowledge and develop and build their respective financial markets.
Both the parties agreed to work in the areas of payment platform services and electronic switches as the second initial agreement. They will link their immediate payment systems, national card switches (UAESWITCH and ETHSWITCH), and messaging systems in compliance with each country’s legislative standards. They will also collaborate in the areas of financial technology and central bank digital currencies.
The Governor of the UAE Central Bank, Khaled said that the exchange of currencies and making use of the local currencies to settle cross-border transactions will help them with their economy. Improving collaboration in interlinking immediate payment systems, electronic switches, and messaging systems would boost economic, trade, and investment opportunities.
“This initiative will also pave the way for more joint business opportunities in the financial and banking sectors,” he added.
With a significant exchange in the pharmaceutical, food and chemical industries the UAE’s non-oil exports to Ethiopia touched $210.3 million in 2022. The two countries expertise and operate in areas including food security, renewable energy, trade, investment, technology, finance, culture, tourism and government development.
The Governor of the National Bank of Ethiopia, Mamo Mihretu said the agreement of currency swapping helps to diversify the range of currencies at its disposal. Increasingly add to the growing volume of trade and investment transactions that are predicted to take place in the coming years.