India-UAE agree to pursue local currency trade and promote domestic payment networks
Mumbai, July 15, 2023
The Reserve Bank of India and the Central Bank of UAE have signed two memoranda of understanding promoting the use of local currencies and domestic payment systems across borders.
The Reserve Bank of India governor, Shaktikanta Das, and the Central Bank of UAE governor, H.E Khaled Mohamed Balama, in Abu Dhabi, signed the MoUs on Saturday.
The signing took place during Narendra Modi's visit to UAE with prime minister Modi and Sheikh Mohamed Bin Zayed Al Nahyan, President of the UAE, being present during the exchange of the MoUs. The UAE is among the top three trading partners and is home to many Indian workers, besides being a major destination for Indian tourists.
The MoU on establishing a framework for using local currencies is to promote using the Indian rupee (INR) and the UAE Dirham (AED) for cross-border transactions by putting in place a Local Currency Settlement System (LCSS) which includes the Indian rupee and the UAE Dirham. The agreement covers all current account transactions and permitted capital account transactions.
"Creation of the LCSS would enable exporters and importers to invoice and pay in their respective domestic currencies, which in turn would enable the development of an INR-AED foreign exchange market," RBI said.
"This arrangement would also promote investments and remittances between the two countries. Use of local currencies would optimise transaction costs and settlement time for transactions, including for remittances from Indians residing in UAE," the statement added.
The areas of cooperation covered under the MoU on 'Payments and Messaging Systems' include: linking the Fast Payment Systems (FPSs) - Unified Payments Interface (UPI) of India with the Instant Payment Platform (IPP) of UAE. It also envisages linking the respective payment card switches - RuPay switch and UAESWITCH.
The two central banks have also agreed to explore the linking of payments messaging systems -- the Structured Financial Messaging System (SFMS) of India with the messaging system in the UAE.
The UPI-IPP linkage will enable users in either country to make fast, convenient, safe, and cost-effective cross-border funds transfers. Similarly, linking the respective Card Switches will facilitate the mutual acceptance of domestic cards and the processing of card transactions.
"The two MoUs are aimed at facilitating seamless cross-border transactions and payments and foster greater economic cooperation between the two countries," the RBI said.
[The Times of India]
