RBI, UAE's central bank sign MoUs to promote local currencies, UPI for cross-border transactions

The Reserve Bank of India and the Central Bank of UAE (CBUAE) on 15 July signed two MoUs related to the promotion of local currencies for cross-border transactions and interlinking their payment systems UPI with the Instant Payment Platform (IPP) of UAE.

According to the MoUs signed between the two central banks, both of them would now help each other in establishing a common framework for the promotion of the use of local currencies, i.e, the Indian rupee (INR) and the UAE Dirham (AED) for cross-border transactions. While the next MoU would help the banks in interlinking their payment and messaging system with UPI and IPP.

"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.

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INR-AED Transactions:

Providing more information, the RBI said that the first MoU on establishing a framework for the use of local currencies for transactions aims to put in place a Local Currency Settlement System (LCSS) to promote the use of INR and AED bilaterally.

It covers all current account transactions and permitted capital account transactions. LCSS would enable exporters and importers to invoice and pay in their respective domestic currencies, which in turn would enable the development of an INR-AED foreign exchange market, said the RBI, adding it would promote investments and remittances between the two countries.

“Use of local currencies would optimise transaction costs and settlement time for transactions, including for remittances from Indians residing in UAE,” the RBI said. 

UPI-IPP link:

While under the second MoU, on ‘Payments and Messaging Systems’, the two central banks agreed to cooperate on linking their Fast Payment Systems (FPSs) – UPI of India with IPP of UAE. Also, apart from this, linking of respective Card Switches (RuPay switch and UAESWITCH) and exploring the linking of payments messaging systems -- SFMS) of India with the messaging system in the UAE -- were also included.

According to RBI, the UPI-IPP linkage will enable the users in either country to make fast, convenient, safe, and cost-effective cross-border funds transfers.  It added that the linking of Card Switches will facilitate mutual acceptance of domestic cards and processing of card transactions. Also, the linkage of messaging systems is aimed to facilitate bilateral financial messaging between the two countries, the RBI release said. 

The MoUs were signed by the Governor of the Reserve Bank of India Shaktikanta Das and the Governor of the Central Bank of UAE Khaled Mohamed Balama.

Also, the MoUs were exchanged between the two Governors in the presence of Prime Minister Narendra Modi and UAE President Sheikh Mohamed Bin Zayed Al Nahyan.