India, UAE Establish Framework For Local Currency Settlement In Cross-Border Transactions

The RBI's Memorandum of Understanding (MoUs) with the UAE came just days after the expansion of the Unified Payments Interface (UPI) to France, allowing Indian tourists to make payments in rupees at the Eiffel Tower.

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New Delhi: In a significant development, the Reserve Bank of India (RBI) and the Central Bank of UAE (CBUAE) have signed two Memorandums of Understanding (MoUs) to enhance financial cooperation between the two nations. The MoUs were signed in Abu Dhabi and witnessed by the Honourable Prime Minister of India, Shri Narendra Modi, and His Highness Sheikh Mohamed Bin Zayed Al Nahyan, President of the UAE.

The first MoU establishes a framework for promoting the use of local currencies, namely the Indian rupee (INR) and the UAE Dirham (AED), for cross-border transactions. This move aims to establish a Local Currency Settlement System (LCSS) that enables exporters and importers to invoice and pay in their domestic currencies. The LCSS will facilitate the development of an INR-AED foreign exchange market, optimize transaction costs, and reduce settlement time for remittances and other transactions. This initiative will foster bilateral investments, remittances, and economic ties between India and the UAE.

The second MoU focuses on cooperation in payments and messaging systems. Under this agreement, the RBI and CBUAE will link their respective Fast Payment Systems (FPSs) - India's Unified Payments Interface (UPI) and UAE's Instant Payment Platform (IPP). This linkage will enable fast, secure, and cost-effective cross-border fund transfers for users in both countries. Additionally, the MoU includes the linking of card switches (RuPay switch and UAESWITCH) to facilitate the acceptance and processing of domestic card transactions. Moreover, the two central banks will explore the integration of their payment messaging systems, enhancing bilateral financial messaging capabilities.

These MoUs pave the way for seamless cross-border transactions and payments, fostering greater economic cooperation between India and the UAE. By promoting the use of local currencies, businesses and individuals will benefit from reduced transaction costs and enhanced convenience. The integration of payment systems and messaging platforms will further streamline financial interactions and facilitate bilateral trade and investment.

This collaboration between the RBI and CBUAE reflects the commitment of both nations to deepen their economic ties and strengthen financial integration. It demonstrates the importance of leveraging technological advancements to create a more connected and efficient financial ecosystem. These initiatives contribute to the broader vision of enhancing economic cooperation, promoting trade and investment, and fostering closer relations between India and the UAE.