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.
Local currencies transactions
- 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.
- Both countries 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.
- 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 marke.
Payments and Messaging Systems
- 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.
- 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.
- The UPI-IPP linkage will enable the users in either country to make fast, convenient, safe, and cost-effective cross-border funds transfers.
- The linking of Card Switches will facilitate mutual acceptance of domestic cards and processing of card transactions.
- The linkage of messaging systems is aimed to facilitate bilateral financial messaging between the two countries.
