India and the UAE on Saturday signed an agreement to use their local currencies — the Indian rupee (INR) and the UAE Dirham (AED) for cross-border transactions.
Both countries also joined hands for interlinking their payment and messaging systems which included the Unified Payments Interface (UPI) and the latter’s Instant Payment Platform (IPP).
The Reserve Bank of India (RBI) and the Central Bank of the UAE signed two MoUs in this regard. According to the RBI, the MoU on establishing a framework for the use of local currencies for transactions between India and UAE, would put in place a Local Currency Settlement System (LCSS) to promote the use of INR and AED bilaterally. It will cover all current account transactions and permitted capital account transactions.
The RBI added that the 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.
It further said that this arrangement would also promote investments and remittances between the two countries and that the use of local currencies would optimise transaction costs and settlement time for transactions, including for remittances from Indians residing in the UAE.
The agreements were signed as Prime Minister Narendra Modi held comprehensive talks with UAE President Sheikh Mohamed bin Zayed Al Nahyan there.
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.
“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 on Twitter after the meeting.
The signing of the MoU with the UAE is yet another attempt of India to use the rupee to settle international transactions. In July 2022, the Reserve Bank of India (RBI) had announced the international trade settlement in INR which entailed the invoicing, payment, and settlement of exports and imports in the rupee.
