India and the United Arab Emirates (UAE) have entered into agreements aimed at enhancing trade settlement in national currencies and establishing a real-time link for cross-border transactions. The move is expected to support India’s efforts to reduce transaction costs by eliminating the need for dollar conversions.
During Indian Prime Minister Narendra Modi’s recent visit to the UAE, the two nations also agreed to establish a real-time payment link to facilitate seamless cross-border money transfers.
Under the memorandum of understanding (MoU) on the use of national currencies, a Local Currency Settlement System (LCSS) will be implemented to promote the use of the Indian Rupee (INR) and the Emirati Dirham (AED). Through the LCSS, exporters and importers will be able to make payments in their respective domestic currencies, fostering the development of an INR-AED foreign exchange market.
The Reserve Bank of India stated that the central banks of both countries have agreed to connect India’s Unified Payments Interface (UPI) with the UAE’s Instant Payment Platform (IPP).
Such arrangements, which are increasingly common in Asia, typically reduce payment costs.
Bilateral trade between India and the UAE amounted to USD 84.5 bln during the period from April 2022 to March 2023.
