Abu Dhabi — The Reserve Bank of India (RBI) and the Central Bank of UAE (CBUAE) have signed two Memorandums of Understanding (MoUs) in Abu Dhabi on Saturday, to promote the use of local currencies for cross-border transactions and interlinking their payment and messaging systems.
The MoUs were signed by Shaktikanta Das, the Governor of the Reserve Bank of India, and Khaled Mohamed Balama, the Governor of the Central Bank of UAE. The signing ceremony was attended by Indian Prime Minister Narendra Modi and UAE President Sheikh Mohamed Bin Zayed Al Nahyan.
The first MoU establishes a framework for the use of local currencies, the Indian rupee (INR), and the UAE Dirham (AED), for cross-border transactions. The agreement aims to create a Local Currency Settlement System (LCSS) to promote the use of INR and AED bilaterally.
The LCSS would enable exporters and importers to invoice and pay in their respective domestic currencies, which would develop an INR-AED foreign exchange market. This arrangement would also promote investments and remittances between the two countries, optimising transaction costs and settlement time for transactions, including for remittances from Indians residing in the UAE.
Under the second MOU, the two central banks agreed to cooperate on linking their payment and messaging systems. This includes linking their Fast Payment Systems (FPSs) – the Unified Payments Interface (UPI) of India with the Instant Payment Platform (IPP) of the UAE, linking the respective Card Switches – RuPay switch and UAESWITCH, and exploring the linking of payments messaging systems, i.e., Structured Financial Messaging System (SFMS) of India with the messaging system in the UAE.
The UPI-IPP linkage will allow users in either country to make fast, convenient, safe, and cost-effective cross-border fund transfers. The linking of Card Switches will facilitate mutual acceptance of domestic cards and processing of card transactions. The linkage of messaging systems is aimed at facilitating bilateral financial messaging between the two countries.
The two MoUs are aimed at facilitating seamless cross-border transactions and payments, and fostering greater economic cooperation between India and the UAE. This move is expected to have a positive impact on bilateral trade and investments, as well as strengthen the economic ties between the two countries.
