On Saturday, the Reserve Bank of India and the Central Bank of the United Arab Emirates (UAE) signed two memorandums of understanding on the use of local currencies for cross-border transactions and the interlinking of payment and messaging systems.
In Abu Dhabi, Prime Minister Narendra Modi and UAE President Mohammed bin Zayed al Nahyan exchanged two Memoranda of Understanding (MoUs).
In addition to facilitating seamless cross-border transactions and payments, the agreements will foster greater economic cooperation between India and the United Arab Emirates (UAE).
""The Reserve Bank of India (RBI) and the Central Bank of UAE (CBUAE) have signed two Memorandums of Understanding to establish a framework to promote the use of local currencies- the Indian rupee (INR) and the UAE Dirham (AED) for cross-border transactions; and to establish cooperation to link their payment and messaging systems," the RBI official release stated.
According to Prime Minister Narendra Modi, "This is a very important aspect of India-UAE cooperation as it paves the way for enhanced economic collaboration and will make international financial transactions simpler."
Shakktanta Das, the Governor of the Reserve Bank of India, and Khaled Mohamed Balama, the Governor of the Central Bank of the UAE, signed the MoUs.
A memorandum of understanding was exchanged between the two governors in August in the presence of Prime Minister Narendra Modi and UAE President Sheikh Mohammed Bin Zayed Al Nahyan.
"With the MoU on establishing a framework for the use of local currencies in transactions between India and UAE, a Local Currency Settlement System (LCSS) will be established to promote the use of INR and AED bilaterally."
As well as current account transactions, the MoU also covers permitted capital account transactions. A LCSS would allow exporters and importers to invoice and pay in their respective domestic currencies, which would enable the development of an INR-AED foreign exchange market.
"The agreement will also facilitate investments and remittances between the two countries. The use of local currencies will reduce transaction costs and settlement times for transactions, including remittances from Indians in the UAE," according to the release.
In their Memorandum of Understanding on ‘Payments and Messaging Systems’, the two central banks agreed to link their Fast Payment Systems (FPSs) - the Unified Payment Interface (UPI) in India and the Instant Payment Platform (IPP) in the UAE; linking the respective card switches (RuPay switch and UAESWITCH); and exploring the possibility of linking India's Structured Financial Messaging System (SFMS) with that of the UAE.
A UPI-IPP linkage will make cross-border funds transfers fast, convenient, safe, and cost-effective for users in either country. The linking of Card Switches will facilitate mutual acceptance of domestic cards and processing of card transactions. In order to facilitate bilateral financial messaging between the two countries, messaging systems are being linked.