- On September 28, the central banks of the United Arab Emirates and Egypt announced a bilateral currency swap deal between the UAE Dirham (AED) and the Egyptian Pound (EGP).
- The agreement allows for the exchange of up to 5 billion AED and 42 billion EGP, or roughly $1.36 billion.
- In a joint press release with Egypt, the Governor of the Central Bank of the UAE stated that the agreement will promote cooperation, develop economic and financial markets, and enhance financial stability.
Why Participate in the Exchange?
- Central banks have participated in currency swaps for decades, and these deals often serve as a financial stability measure, preventing market tensions from further economic implications.
- Currency swap agreements also reflect an effort by central banks to provide extra foreign currency liquidity to domestic banks.
- Egypt is facing a growing economic crisis with rising interest rates and annual inflation hitting a record 39.7% in August.
- As the world’s largest importer of grain, Egypt was struck hard by the Russian invasion of Ukraine.
- According to banking expert Ahmed Shawqi, in line with this currency diversification, Egypt will not need to pay for fuel and petroleum imports in the U.S. dollar.
- The deal will also balance Egypt’s trade deficit with the UAE, saving roughly $1.4 billion dollars by reducing burdens on all goods.
- Addressing the foreign exchange crisis is a prelude to Egypt’s entry into the BRICS bloc.
- According to economist James Swanston, Egypt’s central bank needs “more ammunition to prop up its currency.”
Egyptian-Emirati Economic Relations:
- The UAE and Egypt share free trade access under the Greater Arab Free Trade Agreement (GAFTA).
- According to Egyptian central bank statistics, the UAE holds nine percent of Egypt’s foreign debt and is the largest source of foreign direct investment in Egypt.
- On October 3, Egypt’s Prime Minister Mostafa Madbouly met with Mohamed Hassan Alsuwaidi, UAE’s Minister of Investment, to discuss improvements to the investment environment in Egypt across sectors and industries of mutual interest.
- Despite this collaboration, the two countries diverge on some regional conflicts including the conflict in Sudan, with the UAE and Egypt in support of the Rapid Support Forces and Sudanese Armed Forces respectively.
- In August, Egypt and the UAE were added to the BRICS bloc of developing nations alongside Saudi Arabia, Iran, Ethiopia, and Argentina.
- The countries will formally become members at the beginning of 2024, joining existing members Brazil, Russia, India, China, and South Africa.
- The Egyptian-Emirati currency swap is not an exclusive action, however.
- In September, the Governor of the Central Bank of Egypt discussed another currency swap deal with the Governor of the People’s Bank of China.