China and the United Arab Emirates’ central banks recently conducted a crucial meeting in Hong Kong, completing a significant financial collaboration. During this meeting, the two parties successfully renewed a currency swap agreement worth 35 billion RMB / 18 billion UAE dirhams (approximately 4.9 billion USD) for a duration of five years. The aim of this agreement is to strengthen and promote close financial and economic ties between the two countries.
It is worth noting that China and the UAE first signed a currency swap agreement in 2012. On January 18 of that year, then-Chinese Premier Wen Jiabao attended the opening ceremony of the 4th Entrepreneur Conference and Investment Symposium of the China-Arab Cooperation Forum held in Sharjah. Wen Jiabao revealed in his speech that the Chinese and UAE governments had signed a 35 billion RMB currency swap agreement.
Eleven years later, the UAE and China have once again successfully renewed their currency swap agreement. This not only reflects the depth of the relationship between the UAE and China but also highlights the proactive attitude and commitment of the UAE Central Bank in strengthening its partnership with China in the fields of finance, trade, and investment.
It is worth noting that China has become the UAE’s largest global trading partner. According to 2022 data, non-oil trade between the two countries has exceeded 71.9 billion USD. Both countries anticipate that bilateral trade will reach 200 billion USD by 2030. China is also the UAE’s third-largest foreign investor.
Furthermore, the two parties have also signed a Memorandum of Understanding on Strengthening Central Bank Digital Currency Cooperation. This aims to further promote technical cooperation in central bank digital currencies, which will have a profound impact on the joint development and innovation in this emerging field.
In addition, the renewal opens another door for China. The People’s Bank of China announced that, with the approval of the State Council, it has recently signed a bilateral currency swap agreement with the Saudi Arabian Monetary Authority. The swap agreement is worth 50 billion RMB and has a duration of three years, with the possibility of extension upon mutual agreement.
Although the duration is shorter than the UAE’s renewal at three years, the total amount is 50 billion RMB, slightly higher than the UAE’s 35 billion RMB.
The collaboration between the People’s Bank of China and both countries also signifies another step towards the internationalization of the Chinese yuan, posing a potential threat to the dominance of the US dollar. On the other hand, China’s collaboration with the UAE and Saudi Arabia may also open a green channel for China’s overseas assets.
In more extreme cases, some cryptocurrency exchanges operating in the UAE may become a legal channel for Chinese users to transfer their assets.
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China
Currency Swap Agreement
United Arab Emirates