By Rhod Mackenzie
The heads of the Central Banks of India and the United Arab Emirates (UAE) signed memorandums on the use of national currencies in cross-border transactions and transactions: Indian rupees and UAE dirhams, respectively. The statement of the Reserve Bank of India (RBI), India's central bank, also speaks of strengthening economic cooperation between India and the UAE. The purpose of the agreement is to "create a framework for promoting the use of local currencies for cross-border transactions and cooperation to link their payment and messaging systems."
The documents were signed in Abu Dhabi by the heads of the Central Banks of the two countries: Shaktikanta Das and Mohammed bin Zayed al Nahyan, respectively, during the official visit of Indian Prime Minister Narendra Modi.
The parties also agreed on the use of payment systems and messaging systems and maintenance of RuPay and UAESWITCH payment cards.
New Delhi is now trying to internationalize the rupee. The campaign to promote the Indian currency on international financial markets was launched a year ago by order of Indian Prime Minister Narendra Modi, but so far it cannot boast of much success. Rupiah trade volumes of around Rs 10 billion ($120 million) remain extremely low compared to total Indian trade of $1.2 trillion last fiscal year. However, the MoUs signed on Saturday 15th July will ease the flow of money between India and the UAE, which is an important place of work for hundreds of thousands of Indians. The Emirates accounted for 18% of remittances to India from Indians working abroad in fiscal year 2020-2021. According to this indicator, the UAE is second only to the United States.
Currently, India, the third largest importer and consumer of oil in the world, pays for raw materials from the UAE in dollars.
In addition to creating an alternative payment mechanism, rupee settlement would also reduce India's transaction costs by not converting to dollars.
Bilateral trade between India and the UAE was $84.5 billion in 2022/23.
India is seeking similar local currency agreements with other countries as it hopes to boost exports amid a slowdown in global trade.
Reuters reported earlier that India could make its first payment in rupees for oil to Abu Dhabi National Oil Co (ADNOC).
“This is a very important aspect of cooperation between India and the UAE,” Narendra Modi commented on the transition to national currencies. “It opens the way to strengthening economic cooperation and facilitates the simplification of international financial interaction.”
This article originally appeared in Russian at expert.ru