Barclays Launches E-Interest Rate Swaps In MENA Currencies

Not only is Barclays a sponsor of the Premier League, but it is now taking steps to integrate the Middle East and North Africa currencies into the financial markets!

This past week, the multinational banking and financial services firm announced that it would be launching the first ever live and electronic execution of interest rate swaps using the Middle East and North African (MENA) currencies. More specifically, Barclays will offer live and executable prices in UAE Dirhams (AED) and Saudi Riyals (SAR).

Barclays’ trading platform (BARX) is accessible via Bloomberg using the code MENA. Clients will be able to trade interest rate swaps denominated in UAE dirhams and Saudi riyals with maturities of one to ten years.

BARX available via Bloomberg

Impact on the forex industry

First, you should know that an interest rate swap is simply a financial instrument where two parties can exchange cash flows on interest rate derivatives.

For example, Firm A and Firm B enter an interest rate swap. Firm A agrees to pay a fixed rate of 5% every year while Firm B agrees to pay a floating rate of 3-month LIBOR + 1%. At the end of each year, payments are netted out, which means that whoever has the higher effective interest rate will owe the other party a cash payment. Firm A will benefit if LIBOR is more than 4%, while Firm B will profit on low LIBOR.

What we need to take note of is that there are at least $1 trilliion new interest rate swap trades a day. While that might be peanuts compared to the forex markets’s DAILY volume of $4 trillion, $1 trillion worth of trades is still pretty huge. And now currencies like the dollar-pegged dirham and riyal have access to it.

If other major multinational dealers soon follow Barclays’ feat, then we might see increased trading volume in exotic currency pairs like AED/USD and USD/SAR. Sure, the dirham and riyal might be pegged to the dollar right now, but I think it’s only a matter of time before we see more volume in trading MENA currencies.

As the Middle East and North Africa region become more and more integrated into the global economy, capital will flow in and out of the region. This will generate the need for an easier flow of capital and eventually more fluctuating exchange rates.