Toronto – Ethiopia and the United Arab Emirates are moving in the line of conducting business using their own national currencies instead of relying on other major reserve currencies.
The National Bank of Ethiopia on Tuesday announced that “The National Bank of Ethiopia and the Central Bank of the U.A.E. signed a currency swap agreement and MoUs to promote the use of domestic currencies and interlink their payment and messaging systems.”
Governor of the Central Bank of the UAE (CBUAE), Khaled Mohamed Balama, and Governor of the National Bank of Ethiopia (NBE), Mamo Mihretu on Tuesday inked the agreement for Ethiopian Birr and UAE Dirham swap.
The two countries have also signed two MoU agreements that establish “a framework for the use of local currencies in settling cross-border transactions and for linking their payment and messaging systems,” as disclosed by the NBE.
The NEB stated that the arrangement will facilitate the “financial and commercial cooperation” between the two counties “through the provision of liquidity in local currencies to financial markets, enabling more effective and efficient settlement of cross-border transactions.”
At this point the agreement is to swap up to 3 billion UAE Dirham and 46 billion ETB but it is unclear when its implementation kicks off , and whether there is agreement to increase the volume of currency swap as trade flourishes further.
The agreement allows the CBUAE and the NBE to swap local currencies with a nominal value of up to AED 3 billion and ETB 46 billion. This supports the financial and commercial cooperation between the UAE and Ethiopia. It is about $817 million in U.S. currency. Sources indicate that the volume of trade between two countries has been increasing since 2017. By 2022, the volume of trade was said to be $589 but could be much higher at this point as the commercial activity has been constantly increasing. Perhaps, the amount of the currency swap agreement reflects the volume of trade at this point.
The NBE added that the agreement will “consolidate efforts to promote the use of their respective currencies in settling transactions between the UAE and Ethiopia.”
Furthermore, it is said that under the agreement, “Both parties will cooperate under the second MoU in the areas of payment platform services and electronic switches, by interlinking their instant payment systems, national card switches UAESWITCH and ETHSWITCH, and messaging systems in accordance with the regulatory requirements of each country, in addition to the cooperation in the field of financial technology and central bank digital currencies.”
Mamo Mihretu sees the currency swap agreement as a “funding opportunity” in light of growing volume of trade and UAE investment in Ethiopia. He said ” …The currency swap arrangement provides an important funding opportunity for Ethiopia and also helps diversify the range of currencies at its disposal to facilitate the growing volume of trade and investment transactions expected over the coming years. Both the bilateral currency swap agreement and the MOUs signed today are a testament to the shared commitment of the two countries to further deepen our already close bilateral partnership, so as to facilitate sustainable development and a prosperous future based on mutual benefits.”
Khaled Mohamed Balama on his part is cited as saying that “…This initiative will also pave the way for more joint business opportunities in the financial and banking sectors. We look forward to working closely with our partners in Ethiopia to enhance financial stability and achieve our mutual interests.”
Ethiopia has been facing a serious hard currency shortage to the point that its import trading has been severely impacted by impact. When Abiy Ahmed took office in 2018, UAE made available about US$3 billion in the form of grants and investment to help Abiy’s administration overcome chronic foreign currency shortage. In August 2023, the two countries signed 17 bilateral agreements.
