CURRENCY EXCHANGE AGREEMENT BETWEEN THE UAE AND TURKEY

CURRENCY EXCHANGE AGREEMENT BETWEEN THE UAE AND TURKEY


On January 19, 2022, the Central Bank of Turkey announced a currency exchange agreement between with the Central Bank of the UAE, worth 64 billion liras/ 18 billion dirhams (equivalent to 4.7 billion US dollars), which is approximately equal to the volume of Turkish exports to the UAE in 2021.
 

The aim of the agreement is to increase trade cooperation and facilitate payment operations in light of political and economic rapprochement between the two countries. Through the agreement, trade operations can be carried out by paying in local currencies, which is in the interest of stabilising the Turkish lira, as well as raising the volume of trade exchange with the UAE to above 12 billion US dollars in 2022. Turkey expects that imports from the UAE will significantly increase from about 3 billion dollars to about 5 billion at least. The agreement guarantees to Turkey maintaining its savings of foreign currency for paying off the accumulated Turkish debts in foreign currencies.
 

Through this agreement, the UAE is trying to encourage the Turkish government to allow Emirati goods to gain more access to the Turkish market by providing many facilities, including facilitating the payment process in the local currency.
 

The UAE had reinforced this step by establishing an investment fund of $10 billion to support investment in various fields, most notably logistics, which ensures greater access for Abu Dhabi to regional and global markets.
 

The agreement concluded by the Turkish Central Bank with its Emirati counterpart is not the first, as the Turkish Central Bank signed a currency exchange agreement with the Central Bank of Korea in August 2021; in addition to an agreement with the People’s Bank of China in June of the same year. Also, the Turkish Central Bank signed an agreement in 2020 with the Qatari Central Bank. As such, Turkey expands its foreign currencies and ensures a greater demand for the local currency, which reduces pressure on the cash reserves in the treasury, and enhances the stability of the Turkish lira, which witnessed unprecedented tensions during 2021.
 

More fundamentally, we might discover that the composition of goods exchanged between the UAE and Turkey could undergo remarkable transformations in the coming years as a result of this agreement; especially when, consumer goods constituted the largest proportion in the exchange, followed by intermediary goods, while capital goods constituted less than 4% of the total trade. The agreement is expected to enhance the exchange of raw materials intended for industrial processes, including chemicals and materials used in the food industry, as well as reconfigurable haberdashery in Turkish factories. On the Turkish side, it is expected that the percentage of exports of durable consumer goods such as kitchen equipment, furniture and electronics will increase, in addition to an expected increase in medical equipment.