17 July 2023; MEMO: India and the UAE have signed an agreement to start using a rupee-dirham payment mechanism to settle cross-border trade, following Prime Minister Narenda Modi's visit to Abu Dhabi yesterday. An agreement was also signed to link their fast payment systems, namely the Unified Payments Interface (UPI) of India with the Instant Payment Platform (IPP) of the UAE.
Modi who made the stopover visit while returning from a visit to Paris witnessed the signing of two memorandums of understanding (MoU) between the central banks of both countries along with UAE President Mohamed bin Zayed Al-Nahyan.
The Reserve Bank of India (RBI) said in a statement yesterday that: "The MoU on establishing a framework for the use of local currencies for transactions between India and the UAE, aims to put in place a Local Currency Settlement System to promote the use of INR (Indian rupee) and AED (UAE Dirham) bilaterally."
"The MoU covers all current account transactions and permitted capital account transactions," the Indian central bank added.
Citing government sources, Reuters reported that the India will use the mechanism to pay for oil in addition to other imports from the Gulf state, which has been its fourth largest oil supplier in the year to March. Bilateral trade between the two countries was $84.5 billion in the year from April 2022 to March 2023.
India is the third-largest consumer of crude oil and currently pays for it in dollars. The MoU is the first of its kind, aimed at putting in place a mechanism to promote the use of the rupee and dirham bilaterally. It is also the latest initiative in the de-dollarization of international trade.
