India, UAE sign MoUs for promoting local currencies in cross-border trade

ADU DHABI: Reserve Bank of India and Central Bank of the United Arab Emirates (UAE) on Saturday signed two MoUs for the use of local currencies for cross-border transactions and cooperation for interlinking their payment and messaging systems.

Two Memorandum of Understandings (MoUs) were exchanged in the presence of Prime Minister Narendra Modi and UAE President Mohammed bin Zayed al Nahyan in Abu Dhabi.

The agreements aimed at facilitating seamless cross border transactions and payments, and fostering greater economic cooperation between India and United Arab Emirates (UAE).

"The Reserve Bank of India (RBI) and the Central Bank of UAE (CBUAE) signed two MoUs for establishing a framework to promote the use of local currencies- the Indian rupee (INR) and the UAE Dirham (AED) for cross-border transactions; and cooperation for interlinking their payment and messaging systems," RBI official release said.

Prime Minister Narendra Modi said, "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 MoUs were signed by the Governor of the Reserve Bank of India, Shaktikanta Das and the Governor of the Central Bank of UAE, Khaled Mohamed Balama.

The MoUs were exchanged between the two Governors, in the august presence of the Prime Minister of India, Narendra Modi and Sheikh Mohamed Bin Zayed Al Nahyan, President of the UAE.

"The MoU on establishing a framework for the use of local currencies for transactions between India and UAE, aims to put in place a Local Currency Settlement System (LCSS) to promote the use of INR and AED bilaterally," it said.

The MoU also 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.

"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 release added.

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 Instant Payment Platform (IPP) of UAE; linking the respective Card Switches (RuPay switch and UAESWITCH); and exploring the linking of payments messaging systems i.e., Structured Financial Messaging System (SFMS) of India with the messaging system in the UAE.

The UPI-IPP linkage will enable the users in either country to make fast, convenient, safe, and cost-effective cross-border funds transfers. The linking of Card Switches will facilitate mutual acceptance of domestic cards and processing of card transactions. The linkage of messaging systems is aimed to facilitate bilateral financial messaging between the two countries.