UAE and Ethiopia Forge Bilateral Currency Swap Agreement to Boost Financial Ties

The Central Bank of the UAE and the National Bank of Ethiopia have announced a significant bilateral currency swap agreement, marking a strategic step in enhancing financial and commercial cooperation between the two nations. The pact, unveiled on Tuesday, is designed to strengthen liquidity provisions and streamline cross-border transactions in local currencies.
Details of the Currency Swap Agreement
The agreement facilitates the exchange of local currencies up to a predefined limit, set at Dh3 billion (approximately $817 million) and 46 billion Ethiopian birr. This arrangement allows the two central banks to swap principal and interest payments, providing mutual liquidity support.
A currency swap is a financial contract where two parties exchange currency values, with each party agreeing to swap principal and interest payments on loans denominated in their respective currencies.
Complementary Agreements
In addition to the currency swap, the UAE and Ethiopia have signed two preliminary agreements aimed at enhancing financial cooperation:

Local Currency Use: The first agreement promotes the use of the UAE dirham and the Ethiopian birr for settling cross-border transactions. This initiative is expected to encourage deeper financial and banking collaboration through knowledge-sharing and market development.
Payment Systems Integration: The second agreement focuses on interlinking the countries’ payment platforms and electronic switches. This includes the integration of instant payment systems, such as UAE’s UAESWITCH and Ethiopia’s ETHSWITCH, and aligning messaging systems to meet each country’s regulatory standards. The agreement also encompasses cooperation in financial technology and central bank digital currencies.

Economic Impact and Future Prospects
Khaled Balama, Governor of the UAE Central Bank, highlighted that the new agreements would bolster economic, trade, and investment prospects between the UAE and Ethiopia. He emphasized that this initiative would open up new business opportunities in the financial and banking sectors, facilitating smoother and more efficient cross-border transactions.
Mamo Mihretu, Governor of the National Bank of Ethiopia, expressed that the currency swap arrangement is a crucial funding opportunity for Ethiopia. It is expected to diversify the country’s currency options and support the anticipated growth in trade and investment. Mihretu underscored that these agreements represent a commitment to deepening bilateral ties and fostering sustainable development and prosperity for both nations.
Historical and Economic Context
In 2022, UAE’s non-oil exports to Ethiopia totaled $210.3 million, with notable exchanges in pharmaceuticals, chemicals, and food industries. The two countries maintain a robust partnership across various sectors including agriculture, finance, culture, tourism, and renewable energy.
The newly signed agreements reflect a continued effort to strengthen the economic and financial relationship between the UAE and Ethiopia, paving the way for expanded bilateral collaboration and growth.