ABU DHABI (Agencies): India and United Arab Emirates (UAE) on Saturday signed agreements for the use of local currencies for bilateral trade and to set up a real-time payment link to facilitate easier cross-border money transfers.
The agreement will allow India to settle trade in rupees instead of dollars, boosting New Delhi’s efforts to cut transaction costs by eliminating dollar conversions. The development came during a visit by India’s Prime Minister Narendra Modi to the UAE wherein the two countries also agreed to set up a real-time payment link to facilitate easier cross-border money transfers.
The two agreements will enable “seamless cross-border transactions and payments, and foster greater economic cooperation”, Reserve Bank of India (RBI) said in a 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 statement added.
The Indian central bank said the agreement covers all current account transactions and permitted capital account transactions. “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. This arrangement would also promote investments and remittances between the two countries.”
Use of local currencies would optimise transaction costs and settlement time for transactions, including for remittances from Indians residing in UAE, the RBI added. India, the world’s third biggest oil importer and consumer and whose central bank last year announced a framework for settling global trade in rupees, currently pays for UAE oil in dollars.
Bilateral trade between the two countries was $84.5 billion in the year from April 2022 to March 2023. An official with knowledge of the details of the agreement said India could make its first rupee payment for UAE oil to Abu Dhabi National Oil Co (ADNOC), Reuters reported. Such arrangements, which are a growing trend in Asia, typically lower the cost of payments.
