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Turkey and UAE ink $5bn currency swap deal

The swap deal will help Turkey recover some of the depleted reserves but questions remain on its sustainability
A picture taken on 7 December 2021 in Istanbul shows US dollars banknotes and Turkish lira banknotes (AFP)

Turkey on Wednesday signed a nearly $5bn currency swap agreement with the United Arab Emirates amid a currency crisis that has depleted the Turkish Central Bank’s coffers. 

“The nominal size of this swap agreement is mutually AED [Emirate dirham] 18 billion and TRY [Turkish lira] 64 billion,” the Turkish Central Bank said in a statement. The deal will be valid for three years with a possibility of extension. 

A senior Turkish official told MEE in November that Turkey was seeking at least a $5bn currency swap deal. The official at the time said that the previously inked technical cooperation agreement also allows Abu Dhabi to make direct deposits of US dollars to the Turkish Central Bank.

The UAE has in the past made similar US dollar deposits to the Egyptian central bank with years-long maturity. 

It is one of several currency swap deals that Turkey has made recently to bolster its hard currency reserves.

Turkey is in need of financial support amid record depreciation of the Turkish lira against the US dollar, mainly due to Turkish President Recep Tayyip Erdogan's crusade against interest rates.

Excluding swaps and commitments, the Turkish Central Bank’s net international reserves plunged to minus $56bn last month, the lowest on record since 2002, following a string of sales by the bank to stabilise the lira. 

Analysts say the swap deals with various countries, including Qatar, China and South Korea, are only temporary patches while Ankara's external financing needs continue to increase. 

The UAE slated $10bn for investment in Turkey in November during Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed's landmark visit to Ankara to meet Erdogan.

Both countries now enjoy a friendly relationship after a decade-long rivalry in the region.