The Reserve Bank of India (RBI) and the Central Bank of the UAE (CBUAE) yesterday signed two agreements in Abu Dhabi to establish a framework for cross-border transactions in local currencies and interconnection of payment and messaging systems.
The contracts were exchanged between the two governors in the presence of Indian Prime Minister Narendra Modi and UAE President Sheikh Mohammed bin Zayed Al Nahyan, the Reserve Bank said in a statement.
The Memorandum of Agreement (MOU) is to ‘establish a framework to promote the use of local currencies. Indian Rupee (INR) and UAE Dirham (AED) for cross-border transactions and ‘collaboration to interlink their payment and messaging systems’.
India is promoting cross-border transactions in the local currency to reduce dependence on the US dollar.
“The two MoUs aim to facilitate seamless cross-border transactions and payments and foster greater economic cooperation between the two countries,” RBI said.
The MoU on establishing a framework for the use of local currencies for transactions between India and the UAE aims to establish a Local Currency Settlement System (LCSS) to promote the use of INR and AED bilaterally.
The central bank said the MoU covers all current account transactions and authorized capital account transactions.
“The creation of the LCSS will enable exporters and importers to invoice and pay in their respective domestic currencies, which in turn will enable the development of an INR-AED foreign exchange market. The system will also encourage investment and remittances between the two countries.” It has been added.
The use of local currency will optimize transaction costs and settlement time for transactions including remittances sent from Indians residing in the UAE.
On the ‘Payments and Messaging Systems’ commitment, the RBI said the two central banks have agreed to collaborate to link their Fast Payment System (FPS) – Unified Payment Interface (UPI) with India’s Instant Payment Platform (IPP) in the UAE; and linking associated card switches (RuPay Switch and UAESWITCH); and exploring the connectivity of India’s Structured Financial Messaging System (SFMS) — India’s payment messaging system — with the UAE’s messaging system.
“The UPI-IPP linkage will enable users of both countries to make quick, convenient, secure and cost-effective cross-border fund transfers,” RBI said.
Further, linking of card switches will facilitate mutual acceptance of domestic cards and processing of card transactions.
Connectivity of messaging system aims to facilitate bilateral financial messaging between two countries.
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