The Central Bank of UAE and the Reserve Bank of India (RBI) have signed a Memorandum of Understanding (MOU) aimed at fostering a robust framework to encourage the use of their respective local currencies for cross-border transactions.
The agreements, which were signed in Abu Dhabi on Saturday in the presence of President Sheikh Mohamed and Indian Prime Minister Narendra Modi, also involved collaboration to interlink their payment and messaging systems, India’s RBI wrote in a statement.
The signing ceremony was also attended by Khaled Balama, Governor of the Central Bank of the UAE, and Shaktikanta Das, Governor of the Reserve Bank of India, marking a momentous occasion that is expected to enhance economic cooperation and facilitate smoother financial interactions between the two nations.
As per the RBI statement, the MOU on establishing a framework for the use of local currencies for transactions between India and UAE, aims to put in place a Local Currency Settlement System (LCSS) to promote the use of INR and AED bilaterally.
“The MOU covers all current account transactions and permitted capital account transactions,” the RBI statement revealed.
According to RBI, the creation of the LCSS would enable exporters and importers to invoice and pay in their respective domestic currencies, which would enable the development of an INR-AED foreign exchange market.
This arrangement would also promote investments and remittances between the two countries.
Under the MOU on ‘Payments and Messaging Systems’, the two central banks agreed to cooperate on (a) linking their Fast Payment Systems (FPSs) – Unified Payments Interface (UPI) of India with the Instant Payment Platform (IPP) of UAE.
The UPI-IPP linkage will enable the users in either country to make fast, convenient, safe, and cost-effective cross-border funds transfers.
The linking of card switches will also facilitate the mutual acceptance of domestic cards and the processing of card transactions. The linkage of messaging systems is aimed to facilitate bilateral financial messaging between the two countries.