India, UAE Ink MoUs For Settling Trade In Domestic Currencies

ABU DHABI: India and the United Arab Emirates (UAE) signed agreements to settle trade in national currencies and for setting up a link in real-time for cross-border transactions.

The agreements were inked as Prime Minister Narendra Modi paid a visit to Abu Dhabi on Saturday for improved cooperation in areas like trade, energy and climate action.

3.5 million Indian expatriates are settled in the Emirates and they account for about 30% of the country’s population. With the signing of the Comprehensive Economic Partnership Agreement (CEPA), bilateral trade was boosted in February 2022. In 2022-23, the bilateral trade between India and the UAE was worth $84.5 billion

Modi was welcomed to Abu Dhabi at the airport by Crown Prince Sheikh Khaled bin Mohamed bin Zayed Al Nahyan. He then proceeded for talks with UAE President Sheikh Mohamed bin Zayed Al Nahyan at the Qasr Al Watan presidential palace.

Modi and Sheikh Mohamed bin Zayed then participated in the signing of two MoUs between the Reserve Bank of India (RBI) and the Central Bank of UAE. These MoUs will help establish a framework to use national currencies for transactions and cooperation in interlinking payment and messaging systems.

Yet another MoU between India’s education ministry and Abu Dhabi authorities will pave the way for setting up the new IIT-Delhi campus.

Taking to Twitter, Modi said the agreements between the two central banks will prove to be “very important aspect of India-UAE cooperation,” adding that they will enable enhanced economic collaboration, while making international financial interactions simpler.

Modi and Sheikh Mohamed bin Zayed also held delegation-level and one-on-one talks, where they discussed bilateral cooperation in a range of areas, including trade, investment, fintech, energy, renewables, climate action, higher education and people-to-people ties.

PM Modi said in another tweet, “Our nations are working together on so many issues aimed at making our planet better.”

A Local Currency Settlement System (LCSS) will be put in place with signing of the MoUs on using national currencies, promoting the use of the rupee and dirham. All current account transactions and permitted capital account transactions will be covered by the agreement. It will also enable the development of an INR-AED foreign exchange market.

Transaction costs and settlement time will be reduced by the use of local currencies, including remittances by Indians in the UAE.

This mechanism will enable India to pay for imports of oil and other commodities from the UAE, which is its fourth-largest energy supplier. India currently pays the UAE in dollars for oil.

The second MOU will pave the way for the two central banks to cooperate on linking India’s Unified Payments Interface (UPI) with the UAE’s Instant Payment Platform (IPP) and RuPay switch and UAESWITCH.

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