The Central Bank of UAE (CBUAE) and the Reserve Bank of India (RBI) have signed two Memoranda of Understanding (MoUs) in order to establish a framework to promote the use of the Indian rupee (INR) and the UAE Dirham (AED) for cross-border transactions.
The two MoUs intend to improve cross-border transactions, streamline payments, and foster stronger economic cooperation between the two countries, according to the Reserve Bank of India.
Further, the MoUs aim to implement a Local Currency Settlement System (LCSS) that covers current account transactions and permitted capital account transactions.
The MoUs were signed by RBI Governor Mr. Shaktikanta Das and UAE Central Bank Governor Mr. Khaled Mohamed Balama, in the presence of the UAE President Sheikh Mohamed bin Zayed Al Nahyan and Indian Prime Minister Mr. Narendra Modi.
Talking about the MoUs between the central banks of the two countries, Mr. Modi said that, “This is a very important aspect of India-UAE cooperation. It paves the way for enhanced economic collaboration and will make international financial interactions simpler.”.
The 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.
The use of local currencies would optimize transaction costs and settlement time for transactions, including for remittances from Indians residing in UAE.
According to the statement, “Under the MOU on ‘Payments and Messaging Systems’, the two central banks agreed to cooperate on linking their Fast Payment Systems (FPSs) Unified Payments Interface (UPI) of India with the Instant Payment Platform (IPP) of UAE and linking the respective Card Switches (RuPay switch and UAESWITCH).”
Both parties also agreed to cooperate on exploring the linking of payments messaging systems such as the Structured Financial Messaging System (SFMS) of India with the messaging system in the UAE.
