India, UAE sign MoU for INR-AED cross-border transactions amid Modi’s Abu Dhabi visit

The Reserve Bank of India (RBI) signed two MoUs with the Central Bank of UAE (CBUAE) to promote the use of local currencies for cross-border transaction and to link payment and messaging systems on Saturday.

The agreement was signed between the RBI Governor Shaktikanta Das and the CBUAE Governor Khaled Mohamed Balama, coinciding with Indian Prime Minister Narendra Modi’s visit to Abu Dhabi.

“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,” a statement from RBI said.

The MoU will cover all current account transactions and capital account transactions, it added. The system is expected to aid exporters and importers to invoice and pay in their respective domestic currencies, which in turn would help develop the INR-AED foreign exchange market.

“This arrangement would also promote investments and remittances between the two countries. Use of local currencies would optimize transaction costs and settlement time for transactions, including for remittances from Indians residing in UAE,” the RBI statement 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,” Modi said in a social media post.

The move would help boost India’s efforts to cut transaction costs by eliminating dollar conversions.

Reuters on Friday cited sources as saying that India and the UAE might announce the start of a rupee-dirham payment mechanism to settle bilateral trade. This, it added, would be used to pay for oil as well as other imports from the UAE, its fourth largest oil supplier in the year to March.

Of the UAE’s 10-million-large population, most of whom are expatriates, over three million are Indian citizens. Bilateral trade between India and UAE was $84.5 billion in 2022-23.

“The two MoUs are aimed at facilitating seamless cross border transactions and payments, and foster greater economic cooperation between the two countries,” the RBI statement added.

Under the MoU on payment and messaging systems, the two central banks would link their Fast Payment System – Unified Payments Interface (UPI) of India with Instant Payment Platform (IPP) of the UAE.

It would also link RuPay with UAESWITCH.

This would help streamline cross-border fund transfers and eventually allow the acceptance of domestic cards in the other country.

Modi arrived in Abu Dhabi on Saturday following an official trip to Paris coinciding with France’s Bastille Day celebrations where he was a guest of honor, and has met with Sheikh Mohamed.

“It is always gladdening to meet HH Sheikh Mohamed bin Zayed Al Nahyan. His energy and vision for development are admirable. We discussed the full range of India-UAE ties including ways to boost cultural and economic ties,” Modi said in a statement on Twitter.