Abu Dhabi: India and the United Arab Emirates (UAE) have inked agreements to facilitate trade settlement in their national currencies and establish a real-time link for cross-border transactions, as Prime Minister Narendra Modi embarked on his visit to Abu Dhabi, aimed at fostering cooperation in trade, energy, and climate action sectors.
During the visit, Prime Minister Narendra Modi and Sheikh Mohamed bin Zayed witnessed the signing of a Memorandum of Understanding (MoU) between the Reserve Bank of India (RBI) and the Central Bank of UAE, which charts the framework for employing national currencies for cross-border transactions and collaboration in linking payment and messaging systems.
Describing this collaboration between the central banks as a crucial aspect of India-UAE cooperation, PM Modi took to Twitter to highlight its significance in bolstering economic collaboration and simplifying international financial interactions.
Moreover, in their extensive discussions, Modi and Sheikh Mohamed bin Zayed explored avenues for bilateral collaboration in various areas, including trade, investment, fintech, energy, renewables, climate action, higher education, and people-to-people relations.
Expressing his thoughts on these matters, Modi tweeted about the collective effort of the two nations, aimed at making the world a better place.
The MoU on utilizing national currencies will establish a Local Currency Settlement System (LCSS) to encourage the use of the Indian rupee and the Emirati dirham. This agreement encompasses all current account transactions and permits capital account transactions. By allowing exporters and importers to transact in their respective domestic currencies, the LCSS will also facilitate the development of an INR- AED foreign exchange market.
Furthermore, this arrangement will foster investments and remittances between the two sides, reducing transaction costs and settlement time, particularly for remittances made by Indians residing in the UAE. For instance, India can utilize this mechanism to pay for its imports of oil and other commodities from the UAE, which currently takes place in US dollars.
Under the second MoU, the central banks will collaborate on linking India’s Unified Payments Interface (UPI) with the UAE’s Instant Payment Platform (IPP) and RuPay switch and UAESWITCH. Additionally, they will explore the possibilities of linking India’s Structured Financial Messaging System (SFMS) with the payments messaging system of the UAE.
This UPI-IPP integration will enable users from both countries to make rapid, secure, and cost-effective cross-border transfers. On the other hand, the linking of card switches will facilitate the mutual acceptance of domestic cards and streamline card transactions.
