ABU DHABI: The central banks of the United Arab Emirates and China aim to activate their 35bn yuan ($5.7bn) currency swap agreement soon, Saif Al Shamsi, assistant governor for monetary policy and financial stability at the UAE central bank, told reporters on the sidelines of a financial conference.
The agreement, designed to facilitate two-way trade and investment, was originally signed in January 2012, permitting the central banks to swap their currencies if needed. But private bankers believe there has been little if any use of the arrangement in practice. Most of the UAE’s trade is conducted in dollars and the vast bulk of its foreign reserves are in dollars; its currency is pegged to the US currency.
Last month Qatar took a step towards overtaking the UAE in building financial ties with China. It signed a similar 35bn yuan swap deal with Beijing and said it would become the Middle East’s first hub for clearing transactions in the Chinese currency.
Industrial and Commercial Bank of China’s Doha branch was appointed as the clearing bank for yuan deals in Qatar. Shamsi said that his institution and the Chinese central bank were now eager to “activate” their swap arrangement.
“Right now we are in the process of activation of the swap. It has not been activated yet. There is an official communication,” he told reporters, adding that the process could be completed in coming months.
Shamsi said a yuan clearing centre might also be set up in the UAE, though he did not elaborate.
He said he would not comment on the idea of making the yuan part of the UAE’s foreign reserves, but asked whether the central bank was diversifying into other currencies, he said: “No, it’s 99 percent dollar.”
The UAE central bank’s foreign currency assets totalled Dh327.6bn ($89.3bn) in July.
Asked whether the dollar’s global strength was putting any pressure on the peg, Shamsi said the dirham had effectively been pegged since the 1980s.
“We have been maintaining this peg and this exchange rate since 1980 until today, and in the future we will continue with this.”
He also said that the UAE central bank is looking at proposals for new rules covering bank loans against shares. “The central bank board is studying new regulations for credit against shares,” Saif Al Shamsi said .
He did not elaborate. In July, the Securities and Commodities Authority met with the central bank, the economy ministry and the Dubai and Abu Dhabi stock exchanges to discuss tightening supervision of the bourses.
This followed wild swings in the shares of Arabtec , then the Dubai market’s most heavily traded stock, which more than
tripled to levels far above fair value estimates and then lost more than two-thirds of
their value, dragging down the entire market.
The violence of the rise and fall of Arabtec shares was partly due to the fact that some buyers leveraged themselves through
bank loans or other means, traders said.
After soaring as much as 60 percent earlier this year, the Dubai stock index is now falling sharply again in response to the drop of global oil prices, hurting investors who bought shares on leverage. The index is down 29 percent from this year’s peak.
Reuters
