India and UAE Consent to Trade in Rupee and Dirham for Fostering Business Relationships

By: Asia Business Outlook Team | Wednesday, 19 July 2023

The signing of two memorandums of understanding (MoUs) between the Reserve Bank of India and the Central Bank of the United Arab Emirates marked a significant step forward in India's efforts to promote the use of the rupee in the Gulf region. This event was witnessed by UAE President Sheikh Mohamed bin Zayed Al Nahyan and Prime Minister Narendra Modi, who was on his way back from France when he visited the Gulf country.

The first MoU aims to establish a framework that encourages the use of local currencies for cross-border transactions, specifically the rupee and dirham. The second agreement focuses on connecting the two central banks' payment and messaging systems.

Following the visit, the leaders issued a joint statement emphasising their desire to strengthen cooperation in the payment systems domain, with a particular emphasis on facilitating more efficient integration of cross-border transactions between the UAE and India. This collaboration will involve the mutual acceptance of domestic card schemes through the linking of national card switches, ultimately improving access to payment services for both citizens and residents.

These central bank agreements are consistent with the growing trend of conducting business in local currencies, which gained traction following the Ukraine crisis in February 2022. They also track Indian entities that initiate yuan payments to Russian energy companies.