India and UAE set to use rupee, dirham for trade

The RBI and the UAE Central Bank have established a framework to promote the rupee and dirham for cross border transactions and aim at interlinking their “payment and messaging systems”

India on Saturday moved a step closer to increasing circulation of the rupee in the Gulf region with the signing of two memoranda of understanding (MoU) between the Reserve Bank of India and the Central Bank of the United Arab Emirates.

The signing of these agreements was witnessed by UAE President Sheikh Mohamed bin Zayed Al Nahyan and Prime Minister Narendra Modi, who was on a day-long visit to the Gulf country on his way back from France. 

The first agreement between the RBI and the UAE Central Bank will establish a framework to “promote the use of local currencies (rupee and dirham) for cross border transactions”, the External Affairs Ministry said in a statement.

The other MoU between the two central banks is aimed at interlinking their “payment and messaging systems”, the Ministry said.

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“The leaders expressed their interest in strengthening cooperation in the payment systems area by enabling integration between cross-border transactions between the UAE and India more efficiently. Such cooperation will also include the mutual acceptance of domestic card schemes by interlinking national card switches. Integration between these systems will enhance access to payment services for the benefit of the citizens and residents of the two countries,” a Joint Statement issued after the visit read.

The two agreements between the central banks came in the backdrop of Indian entities commencing payment in yuan to Russian energy majors and are likely to enhance the trend of doing business in local currencies that gained greater acceptance since the beginning of the Ukraine crisis in February 2022.