In a significant move to enhance economic ties, the central banks of Türkiye and the United Arab Emirates (UAE) signed three landmark agreements on Thursday, including a bilateral currency swap deal, aimed at deepening financial cooperation and promoting trade between the two nations. These agreements mark a pivotal step in strengthening the strategic partnership between Türkiye and the UAE, fostering collaboration in finance, financial technology, and cross-border digital payments. The deals are poised to facilitate smoother trade, enhance financial stability, and promote the use of local currencies in transactions, aligning with the broader economic and sustainable development goals of both countries.
Key Agreements and Their Objectives
The agreements consist of a bilateral currency swap deal and two memoranda of understanding (MoUs). Together, they aim to streamline financial operations, encourage the use of local currencies, and integrate payment systems to create a more efficient and interconnected financial ecosystem. Below is a detailed breakdown of each agreement and its intended impact.
1. Bilateral Currency Swap Agreement
The cornerstone of the agreements is a bilateral currency swap deal between the Turkish lira and the UAE dirham. Valued at 198 billion Turkish liras (approximately $4.76 billion) and 18 billion UAE dirhams (approximately $4.9 billion), this swap agreement is designed to provide liquidity in local currencies to financial markets in both countries. By enabling access to each other’s currencies, the deal aims to reduce reliance on third-party currencies, such as the U.S. dollar, for bilateral trade and financial transactions.
The swap agreement is expected to bolster financial cooperation by ensuring that businesses and financial institutions in Türkiye and the UAE have sufficient liquidity to conduct cross-border transactions efficiently. This will facilitate smoother settlement of commercial and financial dealings, reduce transaction costs, and mitigate exchange rate risks. By promoting the use of local currencies, the agreement also aligns with efforts to enhance economic sovereignty and reduce exposure to global currency fluctuations.
The Turkish Central Bank emphasized that the swap deal is a strategic tool to deepen trade ties, noting that it will create a more conducive environment for businesses to engage in cross-border commerce. By providing a stable supply of local currency liquidity, the agreement is expected to encourage investment and support economic growth in both nations.
2. Memorandum of Understanding on Local Currency Transactions
The first MoU focuses on promoting the use of the Turkish lira and UAE dirham in cross-border transactions. This agreement establishes a framework to encourage businesses, financial institutions, and individuals to settle transactions using their respective local currencies, thereby reducing dependency on foreign currencies.
The objectives of this MoU are multifaceted. It seeks to expand the foreign currency market by increasing the circulation of the lira and dirham in international trade and remittances. By doing so, it aims to facilitate smoother international commerce, lower transaction costs, and enhance financial stability. The agreement also promotes investment by creating a more predictable and cost-effective environment for cross-border financial flows.
To achieve these goals, the MoU emphasizes the importance of sharing information and expertise between the two central banks. This includes collaborating on best practices for local currency settlement and exploring ways to integrate the lira and dirham into all types of transactions, including current and capital account activities. By fostering a robust framework for local currency use, the agreement is expected to strengthen economic progress and financial stability in both Türkiye and the UAE.
3. Memorandum of Understanding on Payment Systems Integration
The second MoU is aimed at enhancing the interoperability of payment systems between Türkiye and the UAE. This agreement focuses on promoting the use of domestic payment cards, easing cross-border payment transactions, and ensuring compliance with the regulatory and supervisory frameworks of both countries.
A key component of this MoU is the integration of the UAE’s instant payment platform, Aani, with Türkiye’s FAST (Fast and Secure Transfers) system. By connecting these platforms, the agreement seeks to improve the efficiency and speed of cross-border financial transactions. This involves linking electronic switches and systems in both nations to ensure seamless interoperability and operational efficiency.
Additionally, the MoU promotes collaboration in the development of central bank digital currencies (CBDCs). Both countries are exploring the potential of CBDCs to facilitate payments for individuals and organizations. The agreement outlines a commitment to sharing knowledge and expertise in building platforms for digital currencies, which could further modernize and streamline financial transactions.
By fostering innovation in payment systems, this MoU aims to create a more inclusive and efficient financial ecosystem. It will enable businesses and consumers to conduct cross-border transactions with greater ease, while also supporting the adoption of advanced financial technologies.
Statements from Central Bank Governors
The agreements have been hailed as a milestone in the financial and economic relationship between Türkiye and the UAE. Fatih Karahan, Governor of the Turkish Central Bank, emphasized the transformative potential of the deals, stating, “These agreements reflect the shared commitment of both parties to advancing financial cooperation and fostering bilateral trade using local currencies, in support of broader economic relations and sustainable development goals. The agreements open up new opportunities to facilitate trade and investment relations between stakeholders in both countries.”
Similarly, Khaled Mohamed Balama, Governor of the UAE Central Bank, underscored the strategic importance of the agreements, saying, “The agreements signed reflect the commitment of the Central Bank of the UAE and the Central Bank of the Republic of Türkiye to work together in supporting the efforts of both nations to further strengthen their strategic partnership to new heights – particularly in the areas of finance, financial technology, and cross-border digital payments.”
Broader Implications for Türkiye-UAE Relations
The agreements come at a time when Türkiye and the UAE are actively seeking to deepen their economic and strategic ties. In recent years, both countries have made significant efforts to strengthen bilateral relations, including through high-level diplomatic engagements and trade initiatives. The financial agreements signed on Thursday build on this momentum, creating a robust framework for enhanced cooperation in the financial sector.
By promoting the use of local currencies and integrating payment systems, the agreements are expected to boost trade volumes between the two countries. This is particularly significant given the growing economic ties between Türkiye and the UAE, which span sectors such as energy, manufacturing, technology, and tourism. The swap agreement, in particular, will provide businesses with greater flexibility to engage in trade without the need for intermediary currencies, reducing costs and enhancing competitiveness.
Moreover, the agreements align with the broader economic objectives of both nations. For Türkiye, the deals support efforts to internationalize the Turkish lira and strengthen its position in global trade. For the UAE, the agreements reinforce its role as a global financial hub and a leader in financial technology innovation. By fostering collaboration in areas such as digital payments and CBDCs, the agreements position both countries at the forefront of financial modernization.
Economic and Strategic Benefits
The agreements are expected to yield several economic and strategic benefits for Türkiye and the UAE:
Enhanced Trade Efficiency: By promoting the use of local currencies and integrating payment systems, the agreements will make cross-border transactions faster, cheaper, and more efficient. This will benefit businesses, consumers, and financial institutions in both countries.
Financial Stability: The swap agreement provides a safety net for financial markets by ensuring access to local currency liquidity. This will help mitigate risks associated with currency fluctuations and enhance financial stability.
Innovation in Financial Technology: The collaboration on CBDCs and instant payment platforms positions both countries as leaders in financial technology. This will support the development of modern, inclusive, and efficient financial systems.
Strengthened Bilateral Ties: The agreements reinforce the strategic partnership between Türkiye and the UAE, paving the way for further cooperation in trade, investment, and other sectors.
Conclusion
The three agreements signed by the central banks of Türkiye and the UAE mark a significant milestone in their efforts to deepen financial and economic cooperation. By promoting the use of local currencies, integrating payment systems, and fostering innovation in financial technology, the deals create a strong foundation for enhanced bilateral trade and investment. As both countries continue to strengthen their strategic partnership, these agreements will play a crucial role in driving economic growth, financial stability, and sustainable development in the region.
With a shared commitment to advancing financial collaboration, Türkiye and the UAE are well-positioned to unlock new opportunities for businesses, investors, and consumers. The agreements not only reflect the growing economic ties between the two nations but also their shared vision for a more interconnected and innovative financial future.
