RBI and Central Bank of UAE Sign Landmark Agreements to Boost Cross-Border Transactions and Payments

New Delhi, July 16, 2023: In a significant move to strengthen economic cooperation between India and the United Arab Emirates (UAE), the Reserve Bank of India (RBI) and the Central Bank of UAE (CBUAE) signed two crucial agreements in Abu Dhabi.

The agreements, exchanged in the presence of Prime Minister Narendra Modi and UAE President Sheikh Mohamed Bin Zayed Al Nahyan, aim to establish a framework for cross-border transactions in local currencies and interlinking of payment and messaging systems.

The Memorandum of Agreements (MoUs) are a step towards promoting the use of local currencies, the Indian rupee (INR), and the UAE dirham (AED) for cross-border transactions. This strategic move aligns with India’s efforts to reduce reliance on the US dollar for international trade.

“The two MoUs are aimed at facilitating seamless cross-border transactions and payments and foster greater economic cooperation between the two countries,” stated the RBI.

The first MoU focuses on establishing a framework for the use of local currencies for transactions between India and the UAE. The Local Currency Settlement System (LCSS) will enable exporters and importers to invoice and pay in their respective domestic currencies, leading to the development of an INR-AED foreign exchange market.

This arrangement is expected to boost investments and remittances between the two nations while optimizing transaction costs and settlement time for remittances from Indians residing in the UAE.

The second undertaking involves cooperation between the two central banks in linking their Fast Payment Systems (FPSs) and respective Card Switches. The UPI-IPP linkage will facilitate fast, safe, and cost-effective cross-border funds transfers for users in both countries. Additionally, the mutual acceptance of domestic cards and processing of card transactions will enhance financial connectivity.

Furthermore, the linkage of payments messaging systems aims to facilitate efficient bilateral financial messaging between India and the UAE.

The agreements represent a significant milestone in enhancing economic ties between the two countries and promoting seamless trade and transactions. With a focus on local currencies and advanced payment systems, the cooperation between RBI and CBUAE is set to bring greater convenience and efficiency to cross-border business operations.