The Reserve Bank of India (RBI) on Saturday signed two memoranda of understanding (MoU) with the Central Bank of UAE in Abu Dhabi for cross-border transactions in local currencies and linking payment and messaging systems.
The MoU was signed by RBI Governor Shaktikanta Das and CNUAE Governor Khalid Mohammad Balama. The MoUs were exchanged between the two governors in the presence of Prime Minister Narendra Modi and UAE President Sheikh Mohamed bin Zayed Al Nahyan.
“The Reserve Bank of India (RBI) and the Central Bank of the UAE (CBUAE) today signed two MoUs in Abu Dhabi to (i) establish a framework to promote the use of local currencies. Indian Rupee (INR) and United Arab Emirates Dirham (AED) for cross-border transactions; and (ii) cooperation to interconnect their payment and messaging systems,” the RBI said in a statement.
PM Modi on big deal!
PM Modi said in a tweet that this is a very important aspect of India-UAE cooperation. “This is a very important aspect of India-UAE cooperation. It paves the way for enhanced economic cooperation and will simplify international financial interactions.”
The MoU aims to facilitate seamless cross border transactions
The RBI said the objective of the MoU is to establish a local currency settlement system to promote the use of the Indian rupee and the UAE dirham bilaterally. India is promoting cross-border transactions in local currencies to reduce dependence on the US dollar.
“Both the MoUs are aimed at facilitating seamless cross-border transactions and payments and promoting greater economic cooperation between the two countries,” RBI said.
The objective of the MoU on establishing a framework for the use of local currencies for transactions between India and UAE is to establish a Local Currency Settlement System (LCSS) to promote the use of INR and AED bilaterally.
MoU covers all current account transactions
The bank said the MoU covers all current account transactions and permitted capital account transactions. “The creation of the LCSS will enable exporters and importers to invoice and make payments in their respective home currencies, which in turn will enable the development of an INR-AED foreign exchange market. This arrangement will also promote investment and remittances between the two countries.
The use of local currencies will improve the transaction cost and settlement time of transactions, including remittances from Indians living in the UAE.
UPI-IPP linkage will enable users to make cost-effective cross-border money transfers
With regard to the MoU on ‘Payments and Messaging Systems’, the RBI said the two central banks will cooperate on linking their Fast Payment Systems (FPS) – India’s Unified Payments Interface (UPI) with the UAE’s Instant Payment Platform (IPP). have agreed upon; and linking of the respective card switches (RuPay Switch and UAESwitch); and exploring linking India’s payment messaging system – Structured Financial Messaging System (SFMS) with the messaging system in UAE.
“The UPI-IPP linkage will enable users in any country to make fast, convenient, secure and cost-effective cross-border money transfers,” RBI said.
The addition of card switches will facilitate mutual acceptance of domestic cards and ease the process of card transactions. The linkage of messaging systems aims to facilitate bilateral financial messaging between the two countries.