By Elton Gomes
On Tuesday, India and the United Arab Emirates (UAE) signed a currency swap agreement to boost investment and enable direct trade without using dollars or other international currencies. India also signed an MoU with UAE to on development cooperation in Africa.
The currency swap has been fixed at 200 crore dirhams or Rs 3,500 crore ($ 496 million), depending on which country’s central bank requests the amount, an official statement said.
“The bilateral currency swap agreement between India and UAE is expected to reduce the dependency on hard currencies like US dollar,” the Indian embassy said, as per a report in Gulf News.
India’s External Affairs Minister Sushma Swaraj held exhaustive discussions with her UAE counterpart, Abdullah bin Zayed Al Nahyan, to increase bilateral cooperation in areas such as trade, security, and defence.
Swaraj reached Dubai on Monday for a two day visit, and was received by the foreign minister of the UAE ahead of the UAE-India Joint Commission Meeting.
“Advancing the Comprehensive Strategic Partnership … EAM @SushmaSwaraj & Foreign Minister Sheikh Abdullah bin Zayed Al Nahyan co-chaired 12th India-UAE #JCM. Held exhaustive discussions on cooperation in energy, security, trade, investments, space, defence & consular, among others,” external affairs ministry spokesperson Raveesh Kumar tweeted.
This is the 12th session of the India-UAE Joint Commission Meeting (JCM) for Economic and Technical Cooperation. “Institutional mechanisms guiding the multifaceted cooperation…Two documents signed during the visit of EAM @SushmaSwaraj to #UAE : Agreement on Currency Swap and MoU for Development Cooperation in Africa,” Kumar said in another tweet.
The second agreement will allow both sides to undertake development projects in Africa.
Reinforcing the strong bonds of friendship
EAM @SushmaSwaraj was warmly received by Foreign Minister of #UAE Sheikh Abdullah bin Zayed Al Nahyan on arrival at @OFMUAE for the #JCM. The ministers looked forward to continuing the trend to strengthen & seek partnership in new areas pic.twitter.com/yeagD1Xekb
— Raveesh Kumar (@MEAIndia) December 4, 2018
Later, an official from the Ministry of External Affairs said that the the two leaders had discussed several areas of mutual interests including defence, security, counter-terrorism, trade, economic, energy, science and technology, and civil aviation among others.
On Tuesday afternoon, Swaraj and Nahyan jointly inaugurated the Zayed-Gandhi Digital Museum at Manarath Al Saadiyat in Abu Dhabi.
How will the deal help the two countries?
A currency swap agreement is a pact between two countries that allows trading in their own currencies, and making payments for import and export at a predetermined exchange rate. A currency swap agreement eliminates the use of a third benchmark currency such as the US dollar.
Both the nations’ central banks have agreed to the deal.
The India embassy said, “It is also expected to give a push for the local currencies of the two nations and may reduce the impact of volatility in exchange rate arising from the dependency on a third currency. It is also expected to reduce the transmission costs arising from exchange rate risk.”
Currently, India and the UAE have strong economic and trade ties, with bilateral trade valued at $ 52 billion (190.8 billion dihrams) in 2017, and non-oil trade accounting for $ 34 billion.
In 2017, India’s FDI (foreign direct investment) in the UAE amounted to $ 6.6 billion, while the UAE’s investment in India stood at $ 5.8 billion.
The two nations are also cooperating in the energy sector. Earlier this year, the Abu Dhabi National Oil Company (Adnoc) and an Indian consortium led by the Oil and Natural Gas Corporation (ONGC) signed a 10 per cent offshore concession agreement. The agreement allowed Indian companies a chance to develop Abu Dhabi’s lucrative offshore oilfields.
In addition, Adnoc is also investing in India’s $ 44 billion Ratnagiri petrochemical complex in cooperation with Saudi Aramco. The oil company is exploring the possibility of storing its crude oil at Indian Strategic Petroleum Reserves Ltd.’s (ISPRL) underground oil storage facility in Padur, Karnataka.
At the recently concluded India-UAE Strategic Conclave 2018, Abdulla Alshehhi, managing director and chief consultant at National Advisor Bureau Limited, proposed an underwater rail link connecting UAE and Mumbai.
Indo-Japan currency swap deal
On October 29, 2018, India and Japan signed a pact to raise the scope of a bilateral currency swap agreement to a record $ 75 billion. The pact was aimed at bringing in greater stability in the foreign exchange and capital markets, amid a slide in the rupee in recent months.
“This swap arrangement would be 50% higher than our last swap agreement (signed in 2013). This bilateral swap reflects depth of our deeper economic relationship,” Indian Finance Minister Arun Jaitley said in a tweet.
The agreement was the latest effort to help the sliding rupee, and was signed during Prime Minister Narendra Modi’s two-day visit to Japan.
China’s currency swap deals with Argentina, Nigeria
In other currency swap deals around the world, Argentina’s central bank signed a deal with its Chinese counterpart to expand their currency swap programme by eight billion dollars.
The agreement is an extension of a currency swap deal between the two nations which was initially signed in July 2017. The new deal, announced on Sunday during a visit to Argentina by Chinese President Xi Jinping, means that the total swap amount not stands at $ 18.7 billion.
In May, Nigeria and China agreed to a currency swap deal worth $ 2.4 billion to boost commercial ties and to reduce the need to use the dollar in bilateral trade.
Yi Gang, governor of the People’s Bank of China, and Godwin Emefiele, Yi’s Nigerian counterpart, signed a three-year currency swap agreement of 15 billion yuan, or 720 billion naira, in Beijing on April 27.
The deal would allow Nigerian companies to import spare parts and raw materials from China by sourcing renminbi from local banks. Additionally, the deal would help them avoid “the difficulties of seeking other scarce foreign currencies,” the Central Bank of Nigeria said in a statement.
India had suggested a renminbi-rupee trade to China to boost its exports and tackle the widening trade deficit. However, China has “not accepted the proposal,” an official said.
Elton Gomes is a staff writer at Qrius.