The Reserve Bank of India and the Central Bank of UAE (CBUAE) on Saturday signed two Memorandums of Understanding (MoU) to strengthen the use of local currencies for cross-border transactions and for interlinking their payment and messaging systems.
With an aim to put in place a Local Currency Settlement System (LCSS), the Governors of RBI and CBUAE agreed to establish a framework for the use of local currencies for transactions between the two Asian countries.
The MoU 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,” said RBI in a release.
RBI Governor Shaktikanta Das and Governor of the Central Bank of UAE, H.E. Khaled Mohamed Balama also agreed to link India’s Fast Payment Systems (FPSs) – Unified Payments Interface (UPI) with UAE’s Instant Payment Platform (IPP).
“The UPI-IPP linkage will enable the users in either country to make fast, convenient, safe, and cost-effective cross-border funds transfers,” the release said.
Further, they also agreed to link their respective Card Switches vis-a-vis RuPay switch and UAESWITCH to enable mutual acceptance of domestic cards and processing of these card transactions.
RBI and CBUAE agreed to explore linking of payments messaging systems. Aimed at easing bilateral financial messaging between the two countries, India’s Structured Financial Messaging System (SFMS) of India will be linked with the messaging system in the UAE.
The agreement comes during Prime Minister Narendra Modi’s official visit to the United Arab Emirates on Saturday, where the two nations held comprehensive talks to further deepen the multi-faceted bilateral ties.
PM Modi after talks with UAE President Sheikh Mohamed bin Zayed Al Nahyan, announced that the two countries have agreed to start trade settlement in their currencies.
“India-UAE trade witnessed a 20 per cent increase since the signing of the Comprehensive Economic Partnership Agreement last year,” Narendra Modi said.
The agreement signed on Saturday for trade settlement in the currencies of the two countries shows the strong economic cooperation and mutual trust between the two nations, he added.
The agreement with the UAE on trade settlement in the two countries’ currencies is to facilitate bilateral trade and investments.