During PM Modi’s Visit, India and UAE Ink Deal to Trade in Local Currencies.
During Prime Minister Narendra Modi’s visit to Abu Dhabi, India and the UAE signed agreements on Saturday to initiate trade settlement using their national currencies, the Rupee and the Dirham.
Additionally, they agreed to connect their fast payment systems, aiming to streamline international financial transactions and make them more convenient.
During his return journey from Paris to New Delhi, Prime Minister Narendra Modi met with President Sheikh Mohamed bin Zayed Al Nahyan of the United Arab Emirates (UAE) in Abu Dhabi, where several significant agreements were signed.
Among these agreements, one involved the establishment of an Indian Institute of Technology Delhi (IIT-Delhi) campus in Abu Dhabi.
Upon his arrival at the airport, the UAE president warmly welcomed Prime Minister Modi.
The meeting between the two leaders resulted in adopting two joint statements, with one explicitly focusing on fostering cooperation in addressing climate change.
They emphasized the urgent and critical need for developed countries to fulfil the $100 billion delivery plan to provide financial assistance to developing nations for climate-related initiatives.
Moreover, they underscored the significance of conducting a global stocktake to evaluate collective actions to achieve the Paris Agreement’s objectives. Notably, the UAE will host the 2023 United Nations Climate Change Conference (UNFCCC COP28) in Dubai later this year, further highlighting its commitment to addressing climate change at a global level.
During the Memorandums of Understanding (MoUs) exchange witnessed by Prime Minister Narendra Modi and UAE President Sheikh Mohamed bin Zayed Al Nahyan, Modi highlighted the substantial growth in bilateral trade between India and the UAE.
Since signing the Comprehensive Economic Partnership Agreement last year, trade between the two countries has witnessed a remarkable 20% increase.
The prime minister expressed optimism that the trade volume would soon reach $100 billion, as they had already achieved a significant milestone of $85 billion. He further stated that concerted efforts could surpass this milestone even before the G20 summit.
Furthermore, the Reserve Bank of India (RBI) Governor, Shaktikanta Das, and the Central Bank of UAE (CBUAE) Governor, Khaled Mohamed Balama, signed a groundbreaking Memorandum of Understanding (MoU).
This MoU aims to establish a framework that promotes using local currencies, namely the Indian Rupee (INR) and the UAE Dirham (AED), for cross-border transactions.
This pioneering MoU, the first of its kind, focuses on implementing a Local Currency Settlement System (LCSS) to facilitate bilateral usage of the INR and AED. The LCSS covers all current account transactions and permitted capital account transactions.
By enabling exporters and importers to invoice and transact in their respective domestic currencies, the LCSS paves the way for developing an INR-AED foreign exchange market.
The Reserve Bank of India emphasized that this arrangement will facilitate investment and remittances between the two countries and optimize transaction costs and settlement time, particularly for remittances from Indians residing in the UAE.
In summary, these trade and financial cooperation developments between India and the UAE mark significant milestones that foster economic ties, promote bilateral investments, and enhance transactional efficiency for businesses and individuals alike.
Peekay Intermark Ltd., a gold exporter based in the UAE, became the first user of the newly established Local Currency Settlement System (LCSS) between India and the UAE. The company successfully conducted a transaction of Rs 12.84 crore, equivalent to 25 kilograms of gold, using the LCSS.
The diplomatic mission of New Delhi in Abu Dhabi tweeted its congratulations to Peekay Intermark Ltd. and YES Bank for being the pioneers in settling a gold transaction in Indian Rupees (INR) through the newly implemented LCSS.
This achievement marks a significant milestone in utilizing the local currency settlement system between India and the UAE.
In addition to the LCSS, the Memorandum of Understanding (MoU) on ‘Payments and Messaging Systems’ paves the way for integrating both countries’ Fast Payment Systems (FPSs).
India’s Unified Payments Interface (UPI) will be linked with the Instant Payment Platform (IPP) of the UAE, facilitating seamless cross-border fund transfers. Moreover, the respective Card Switches, namely the RuPay switch and UAESWITCH, will be connected, enabling the mutual acceptance and processing of domestic card transactions.
Additionally, the MoU explores the possibility of linking India’s Structured Financial Messaging System (SFMS) with the messaging system in the UAE.
According to the RBI, integrating UPI and IPP will enable users in both countries to make fast, convenient, safe, and cost-effective cross-border fund transfers.
The linkage of Card Switches aims to facilitate the acceptance and processing of domestic cards in each country. Furthermore, the connection of messaging systems is intended to enhance bilateral financial messaging between India and the UAE.
Overall, these developments in the payments and messaging systems, alongside the successful implementation of the LCSS, signify significant progress in strengthening financial ties and promoting seamless transactions between India and the UAE.
