Reserve Bank of India (RBI) and Central Bank of UAE (CBUAE) on Saturday signed two agreements in Abu Dhabi to establish a framework for cross-border transactions in local currencies and interlinking of payment and messaging systems.
The agreements were exchanged between the two governors, in the presence of the Prime Minister of India Narendra Modi and Sheikh Mohamed Bin Zayed Al Nahyan, President of the UAE, the Reserve Bank said in a statement.
The memorandum of agreements (MoUs) are for 'establishing a framework to promote the use of local currencies viz. the Indian rupee (INR) and the UAE dirham (AED) for cross-border transactions' and 'cooperation for interlinking their payment and messaging systems'.
India has been promoting cross-border transactions in local currencies to reduce dependence on the US dollar.
"The two MoUs are aimed at facilitating seamless cross-border transactions and payments and foster greater economic cooperation between the two countries," the RBI said.
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 central bank said the MoU covers all current account transactions and permitted capital account transactions.
"Creation of the 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. This arrangement would also promote investments and remittances between the two countries," it added.
Use of local currencies would optimise transaction costs and settlement time for transactions, including for remittances from Indians residing in UAE.
Regarding the undertaking on 'Payments and Messaging Systems', the RBI said the two central banks agreed to cooperate on linking their Fast Payment Systems (FPSs) - Unified Payments Interface (UPI) of India with Instant Payment Platform (IPP) of UAE; and linking the respective Card Switches (RuPay switch and UAESWITCH); and exploring the linking of payments messaging systems -- Structured Financial Messaging System (SFMS) of India with the messaging system in the UAE.
"The UPI-IPP linkage will enable the users in either country to make fast, convenient, safe, and cost-effective cross-border funds transfers," the RBI said.
Further, 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.
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