The Central Bank of the UAE (CBUAE) signed a bilateral currency swap agreement with its Turkish counterpart to help improve trade and investment ties.
The size of the agreement between the UAE dirham and the Turkish lira is Dh18 billion ($4.9bn) and 64bn Turkish lira, the CBUAE said.
A foreign currency swap is an agreement to exchange currency between two parties, in which they swap principal and interest payments on a loan made in one currency for a loan of equal value in another currency.
The agreement will promote bilateral trade and strengthen financial co-operation between the two countries.
The pact remains in place for a period of three years, with the possibility of an extension through mutual agreement, the UAE banking regulator said.
“Signing this agreement with the Central Bank of the Republic of Turkey reflects each nation’s desire to enhance bilateral co-operation in financial matters, particularly in the fields of trade and investments between the two countries,” CBUAE governor Khaled Mohamed Balama said.
The agreement “demonstrates the two central banks’ commitment to deepen bilateral trade in local currencies in order to advance economic and financial relations between our countries”, said Şahap Kavcıoğlu, governor of the Central Bank of Turkey.
It will also help to improve Turkey’s foreign currency reserves and will ease its large foreign debt burden. The Turkish lira, which has faced increased pressure in recent quarters following soaring inflation and aggressive rate cuts last year, lost about 45 per cent of its value against the dollar in 2021.
In November, the UAE formed a $10bn fund to support investments in Turkey, following talks between Sheikh Mohamed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces, and Turkish President Recep Tayyip Erdogan.
The investment fund aims to increase support for the Turkish economy and will focus on strategic investments, including energy, health and food.