RBI, Central Bank of UAE sign two MoUs for trade in local currencies

The Reserve Bank of India (RBI) and the Central Bank of UAE (CBUAE) signed two Memoranda of Understanding (MoUs) in Abu Dhabi on Saturday to establish a framework in order to promote the use of the Indian rupee (INR) and the UAE Dirham (AED), for cross-border transactions.

The two MoUs aim to enhance cross-border transactions, streamline payments, and foster stronger economic cooperation between the two countries, a release by the Reserve bank of India said.

The MoUs were signed by the RBI Governor Shaktikanta Das and the Governor of the Central Bank of UAE, Khaled Mohamed Balama in the presence of the Prime Minister of India, Narendra Modi, and the President of the UAE, Sheikh Mohamed Bin Zayed Al Nahyan.

The aim is to implement a Local Currency Settlement System (LCSS) that covers current account transactions and permitted capital account transactions. The ultimate goal is to create an INR-AED foreign exchange market, facilitate investments, and streamline remittances between the two countries.

 “Use of local currencies would optimize transaction costs and settlement time for transactions, including for remittances from Indians residing in UAE,” the release said.

Furthermore, the central banks have committed to collaborating on various aspects, including the integration of their Fast Payment Systems (FPSs), such as India’s Unified Payments Interface (UPI) and UAE’s Instant Payment Platform (IPP). They also intend to connect their Card Switches, namely RuPay switch and UAESWITCH, while exploring the possibility of linking their payments messaging systems, such as India’s Structured Financial Messaging System (SFMS), with the UAE’s messaging system.

“The UPI-IPP linkage will enable the users in either country to make fast, convenient, safe, and cost-effective cross-border funds transfers,” the release said. “The linking of Card Switches will facilitate mutual acceptance of domestic cards and processing of card transactions. The linkage of messaging systems is aimed to facilitate bilateral financial messaging between the two countries.”