The UAE and India signed agreements for establishing a framework to promote the use of local currencies for cross-border transactions and co-operation for interlinking their payment and messaging systems.
The agreements were signed by Khaled Balama, Governor of the Central Bank of the UAE, and Shaktikanta Das, Governor of the Reserve Bank of India, in the presence of President Sheikh Mohamed and Indian Prime Minister Narendra Modi in Abu Dhabi on Saturday.
The agreement aims to put in place a local currency settlement system (LCSS) to promote the use of the Indian rupee and the dirham bilaterally, the RBI said in a statement on its website.
“The agreement covers all current account transactions and permitted capital account transactions,” it said.
“Creation of the LCSS would enable exporters and importers to invoice and pay in their respective domestic currencies, which in turn would enable the development of an INR-AED foreign exchange market.”
India could make its first rupee payment for UAE oil to Abu Dhabi National Oil Company, Reuters reported on Friday.
This arrangement would promote investments and remittances between the countries, the regulator said.
Use of local currencies help to optimise transaction costs and settlement time for transactions, including for remittances from Indians residing in the UAE, it said.
The two countries also agreed to co-operate on linking their fast payment systems – India’s Unified Payments Interface with the UAE’s Instant Payment Platform – to ease cross-border money transfers.
Such arrangements typically lower the cost of payments.
The agreement will also explore linking their respective Card Switches (RuPay switch and UAESWITCH) for mutual acceptance of domestic cards and processing of card transactions.
The Central Bank of the UAE introduced UAESWITCH in 1996 to link the automated teller machine (ATM) network of all banks in the UAE.
The UAESWITCH provides regional and international connectivity with other similar national systems.
The two countries will also seek to link their payments messaging systems to facilitate bilateral financial messaging, the RBI said.
Meanwhile, Abdullah Al Marri, Minister of Economy, said the UAE and India have adopted a package of initiatives and joint action plans to expand sectors of the new economy in their markets and stimulate the growth of Emirati and Indian start-ups to increase their contribution to the growth of gross domestic product in the two countries.
The two countries are increasing economic co-operation in sectors of the circular economy, tourism, aviation, entrepreneurship, small and medium enterprises, renewable energy, technology, digital transformation and transportation, he told Wam.
Non-oil foreign trade between them reached Dh188.8 billion ($51.4 billion) in 2022, a growth of 15 per cent compared with 2021.
A year after their Comprehensive Economic Partnership Agreement (Cepa) took effect, the two countries have strengthened their strategic relations, Dr Thani Al Zeyoudi, Minister of State for Foreign Trade, also told Wam.
Bilateral non-oil trade reached $50.5 billion in the first 12 months of the Cepa signing.
The significant growth in the volume of bilateral non-oil trade signifies the Cepa’s progress, which puts it on track to reach $100 billion in non-oil trade annually by 2030, Dr Al Zeyoudi said.
The UAE signed its first Cepa with India in February last year and it took effect the following May.
The benefits of the Cepa include enhanced market access, lower or eliminated tariff rules, simpler customs procedures, clear and transparent rules, and rule-based competition.