India-UAE Agreement on Use of Local Currencies for Cross-Border Transactions

India and the United Arab Emirates (UAE) have signed a Memorandum of Understanding (MoU) with the aim of establishing a framework for trade settlement in their respective national currencies and linking their fast payment systems. This development marks a significant milestone in enhancing financial interactions between the two countries.  

Promoting Local Currency Settlement System 

The MoU, signed by Shaktikanta Das, the Reserve Bank of India (RBI) Governor, and Khaled Mohamed Balama, the Central Bank of UAE (CBUAE) counterpart, seeks to promote the use of the Indian Rupee (INR) and the UAE Dirham (AED) for cross-border transactions. It establishes a Local Currency Settlement System (LCSS) that covers current account transactions and permitted capital account transactions. 

Benefits of Using Local Currencies 

By utilizing local currencies for transactions, both countries aim to optimize transaction costs and settlement time. This move is expected to promote investments and remittances between India and the UAE. It also offers advantages to Indians residing in the UAE, enabling them to conduct transactions more efficiently. 

Linking Payments and Messaging Systems 

The MoU also encompasses the linking of the Unified Payments Interface (UPI) of India with the Instant Payment Platform (IPP) of the UAE. Additionally, it facilitates the connection of the respective Card Switches, namely RuPay switch and UAESWITCH. This linkage allows for fast, convenient, safe, and cost-effective cross-border funds transfers between users in both countries. 

Progress Towards Trade Target 

India and the UAE have set a target of $100 billion for bilateral trade. Encouragingly, the trade volume has already reached $85 billion, showcasing the strong economic ties between the two nations. The MoU on trade settlement and fast payment systems is expected to further enhance trade cooperation and facilitate smoother financial transactions. 

First Users of the Local Currency Settlement System 

Peekay Intermark Ltd. and YES BANK were the first users of the newly established LCSS. They successfully settled a gold transaction worth Rs 12.84 crore for 25 kgs of gold, marking a significant milestone in utilizing the system for commercial transactions. 

Month: Current Affairs - July, 2023

Category: International / World Current Affairs