Bilateral Agreements, Regional & International Trade as Intrasettle's First Business Use Case.
Cross-border transactions often involve a limited number of dominant currencies, resulting in restricted FX trading for non-dominant currency pairs. This exposes emerging markets and developing economies (EMDEs) to spillover effects from the monetary policies of jurisdictions where the foreign currency originates and to associated financial stability risks, such as credit cycles. The limited international role of many local EMDE currencies raises concerns about liquidity access during global financial turbulence.
In recent years, FX settlement risk has increased due to a decline in global settlements using PvP mechanisms. This is partly because existing arrangements, such as CLS, do not support many EMDE currencies experiencing substantial trading volume growth.
Intrasettle's mCBDC platform offers several use cases, with 15 potential cross-border applications of significant value identified for the mCBDC model, including international trade settlement, remittances, tokenized bond issuance, e-commerce, and more.
We emphasize international trade settlement between jurisdictions with bilateral and regional trade agreements as Intrasettle's primary business use case, considering the extensive trade value in regions with such agreements.
Intrasettle supports local FX market development and extends the safety of central bank money to international settlements by providing a shared platform for participants to conduct peer-to-peer payments directly within the safety of multiple jurisdictions' CBDCs. This approach alleviates many challenges in international payments, expands PvP protection to additional currencies, and promotes local currencies in cross-border settlements.
India-UAE Bilateral Trade to Exceed $88 Billion
India-UAE bilateral trade has grown from US$ 180 million (Rs. 1,373 crore) per annum in the 1970s to US$ 60 billion (Rs. 4.57 lakh crore), making the UAE India's third-largest trading partner for 2019-20, following China and the US. The UAE is India's second-largest export destination (after the US), with an export value of US$ 29 billion (Rs. 2.21 lakh crore) for 2019-2020. The UAE ranks as the eighth-largest investor in India, with an estimated investment of US$ 18 billion (Rs. 1.37 lakh crore). Indian investments in the UAE are estimated at around US$ 85 billion (Rs. 6.48 lakh crore).
India and the UAE signed a bilateral "Comprehensive Economic Partnership Agreement" (CEPA) on 18/02/2022, potentially increasing trade between the two countries from US$ 60 billion (Rs. 4.57 lakh crore) to US$ 100 billion (Rs. 7.63 lakh crore) over the next five years.
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India and the UAE are emerging as leading players in global supply chains and commodity markets, and both jurisdictions are essential trade partners for the rest of the world.
Despite deepening intra-regional economic ties and supply chain integration in recent decades, trade in many regions continues to be settled predominantly in foreign currencies. Local currencies play limited roles in international trade, partly due to the relatively high transaction costs associated with most Asian currencies compared to major currencies. This dependence on foreign currencies for cross-border payments could inadvertently impact monetary sovereignty through monetary policy spillovers from the currency-originating jurisdiction, adding more intermediaries and steps to the process.
For instance, when a UAE corporate (the payer) imports goods from an Indian corporate (the payee) using a foreign currency as the invoicing currency, the transaction involves the UAE payer's local bank, the Indian payee's local bank, and both parties' correspondent banks. The process becomes even more complex if the banks of the UAE and Indian corporates are small, local institutions without a direct correspondent network, necessitating additional intermediaries and steps. As multiple banks participate in the payment chain, transaction fees may be charged, and know-your-customer (KYC), anti-money laundering (AML), and counter-terrorist financing (CTF) checks can be carried out at each bank, leading to numerous breakpoints.
Intrasettle addresses this issue by facilitating peer-to-peer payments directly within the safety of the CBDCs like India- UAE as two jurisdictions, with the possibility of supporting significant global trade flows as more jurisdictions join the platform.
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