Summary
- The United Arab Emirates said it is seeking to establish a currency swap line with the US as it moves to expand financial cooperation.
- It said that as uncertainty over foreign-currency access grows in the fallout from the closure of the Strait of Hormuz, a currency swap would serve as a dollar backstop if agreed.
- After the UAE's exit from OPEC, the need for cooperation with the US has grown, and a currency swap agreement could expand ties between the two countries into security and military fields.
Forecast Trend Report by Period
UAE Confirms Talks With US on Currency Swap
Hormuz Disruption Raises Need for FX Backstop
Closer US Cooperation Follows OPEC Exit
The United Arab Emirates is pursuing a currency swap line with the US as it looks to expand financial cooperation.
Thani Al Zeyoudi, the UAE's minister of state for foreign trade, said at an event in Abu Dhabi on May 4 that the country is in talks with several nations, including the US, on currency swaps.
"We are discussing it with a number of countries, and this is part of the process of becoming a member of the elite group that operates under the US swap policy," he said.
The US currently has currency swap arrangements with only five countries, Al Zeyoudi added. Joining that group would mean bilateral transactions, trade and investment have reached a point where a currency swap is essential.
He did not disclose the size of the talks or a timeline. The Federal Reserve currently maintains standing swap lines with five major central banks: the European Central Bank, the Bank of Canada, the Bank of Japan, the Bank of England and the Swiss National Bank.
The UAE's move comes amid recent turmoil in the Middle East. Uncertainty over access to foreign currency has increased after the closure of the Strait of Hormuz disrupted oil exports. If agreed, a currency swap would serve as a backstop for securing dollars during foreign-exchange market stress.
The effort is also tied to a shift in the UAE's energy and diplomatic strategy. The UAE withdrew from the Organization of the Petroleum Exporting Countries on May 1, signaling a more independent course outside the traditional oil-producer order.
That has sharpened the need for closer cooperation with the US. From Washington's perspective, a currency swap with a Middle Eastern oil exporter could also reinforce the dollar-based system for crude trading.
If the UAE secures a currency swap with the US, ties between the two countries could broaden beyond finance into security and military cooperation.
Shin Hyun-bo, Hankyung.com reporter, greaterfool@hankyung.com
Korea Economic Daily
hankyung@bloomingbit.ioThe Korea Economic Daily Global is a digital media where latest news on Korean companies, industries, and financial markets.
