Edition #42 - India-UAE agree to pursue local currency trade and promote domestic payment networks
In recent months, we’ve been seeing many countries create agreements to shift from the #USdollar to conduct trade in their local #currencies. Another such agreement has been brought to life between India and UAE wherein the two nations have agreed to pursue local #currency trade and promote #domestic #payment networks.
The #ReserveBankofIndia (#RBI) and the #CentralBank of UAE recently announced the signing of two significant memoranda of understanding (MoUs) aimed at fostering the use of local currencies and domestic payment systems in cross-border transactions.
Under the supervision of #RBIGovernor Shaktikanta Das and Central Bank of UAE Governor H.E Khaled Mohamed Balama, the MoUs were officially signed in Abu Dhabi during a meeting attended by Prime Minister #NarendraModi and Sheikh Mohamed Bin Zayed Al Nahyan, President of the UAE. This collaboration holds particular significance as the UAE stands among India's top three trading partners, with a considerable Indian workforce and being a key tourist destination for Indians.
The first #MoU establishes a comprehensive framework for leveraging local currencies, specifically the Indian #rupee (INR) and the #UAE Dirham (AED), to facilitate cross-border transactions. This framework introduces a Local Currency Settlement System (LCSS) encompassing the INR and AED, covering both current account and authorized capital account transactions.
The RBI highlighted the significance of this agreement by stating that the establishment of the LCSS will enable exporters and importers to transact and settle payments in their respective domestic currencies, subsequently fostering the growth of an INR-AED foreign exchange market. Additionally, this arrangement is expected to boost #investments and #remittances between the two countries while optimizing #transaction costs and settlement times, particularly for remittances from Indian residents in the UAE.
The second MoU focuses on enhancing cooperation in the realm of Payments and Messaging Systems. Key areas of collaboration include the integration of India's Fast Payment Systems (FPSs) - Unified Payments Interface (#UPI) - with the UAE's Instant Payment Platform (IPP). Furthermore, the agreement envisions connecting the respective payment card switches, namely the #RuPay switch and UAESWITCH.
Furthermore, the central banks have expressed their intent to explore linking their payments messaging systems, with a particular emphasis on integrating India's Structured Financial Messaging System (SFMS) with the UAE's messaging system.
Through the UPI-IPP linkage, individuals in either country will have the ability to make rapid, convenient, secure, and cost-effective cross-border fund transfers. Similarly, connecting the respective card switches will facilitate the mutual acceptance of domestic cards and streamline card transaction processing.
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