The Reserve Bank of India and the Central Bank of the United Arab Emirates (CBUAE) signed two Memorandums of Understanding (MOUs) concerning the promotion of local currencies for cross-border transactions and the interconnection of the payment systems UPI with the UAE’s Instant Payment Platform (IPP).
According to MoUs signed by the two central banks, both would now assist each other in building a shared framework for promoting the use of local currencies, the Indian rupee (INR) and the UAE Dirham (AED), for cross-border transactions.
“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 RBI press release said.
According to the RBI, the first MoU on building a framework for the use of local currencies for transactions aims to put in place a Local Currency Settlement System (LCSS) to promote the bilateral usage of INR and AED.
It includes all current account and approved capital account transactions. According to the RBI, LCSS would allow exporters and importers to invoice and pay in their respective local currencies, allowing the creation of an INR-AED foreign currency market and promoting investments and remittances between the two nations.
“Use of local currencies would optimise transaction costs and settlement time for transactions, including for remittances from Indians residing in UAE,” the RBI said.
In the second MoU, on ‘Payments and Messaging Systems,’ the two central banks agreed to collaborate on linking their Fast Payment Systems (FPSs) – UPI in India and IPP in the UAE. Aside from that, the connectivity of respective Card Switches (RuPay Switch and UAESWITCH) and the exploration of payments messaging systems (SFMS) of India with the messaging system in the UAE were also covered.
According to the RBI, the UPI-IPP link will allow users in either nation to perform cross-border financial transfers that are fast, convenient, safe, and cost-effective. It further stated that linking Card Switches will promote mutual acceptance of domestic cards and card transaction processing. The linking of messaging systems is also intended to facilitate bilateral financial messaging between the two countries, according to the RBI release.
The MoUs were signed by Shaktikanta Das, Governor of the Reserve Bank of India, and Khaled Mohamed Balama, Governor of the Central Bank of the UAE.
In addition, the two Governors exchanged MoUs in the presence of Prime Minister Narendra Modi and UAE President Sheikh Mohamed Bin Zayed Al Nahyan.
