UAE and India Agree To Use Local Currencies For Trade
In today’s world, where countries are more connected than ever, it’s important to be able to easily send money from one place to another. The United Arab Emirates (UAE) and India are making some big changes to make this even easier. They’ve agreed to start using their local currencies, the dirham and the rupee, for trading with each other. This blog post will explain what these changes mean, how they will work, and what effect they might have on the UAE’s and India’s economies.
The Groundbreaking Agreement
The UAE and India have reached a landmark agreement designed to streamline cross-border transactions between the two nations. In a progressive move, they have decided to use their local currencies – the dirham in the UAE and the rupee in India – for transactions. This means businesses in either country can engage in trade using their own currency, which simplifies financial operations.
This significant change was formalized by two key figures: Khaled Balama, the Governor of the Central Bank of the UAE, and Shaktikanta Das, the Governor of the Reserve Bank of India. The signing ceremony, which marked the official commencement of this agreement, was attended by high-ranking officials from both nations, including the UAE’s President Sheikh Mohamed and India’s Prime Minister Narendra Modi.
In addition to facilitating the use of local currencies, the agreement also outlines plans to integrate the payment systems of the two countries. This would make it much easier for money to be transferred between the UAE and India, a change that would have wide-reaching effects on both economies.
Instating the Local Currency Settlement System
The central feature of the agreement is the establishment of a Local Currency Settlement System (LCSS). The LCSS is a platform designed to boost the usage of the Indian rupee and the UAE dirham in business transactions between the two nations. By enabling trade to be conducted directly in local currencies, the LCSS removes the need for conversions and decreases the complexities often encountered with international transactions.
According to the Reserve Bank of India (RBI), this system covers all standard transactions and even extends to some specific kinds of financial dealings, known as capital account transactions. This innovative setup allows businesses in both countries to invoice and pay for goods and services in their own currency, creating a more fluid and efficient trading environment.
There is even potential for the first payment for UAE oil by India to be made in rupees to the Abu Dhabi National Oil Company, marking a significant step in the utilization of local currencies. These changes could lead to the creation of an entirely new foreign exchange market, exclusively dealing with the Indian rupee and the UAE dirham.
How the Agreement Benefits Everyone
This new agreement has some big advantages for both countries. One of the main perks is that it encourages more investment and more money being sent between India and the UAE.
When businesses can use their own currency to trade, things become simpler and less expensive. This is because they no longer have to worry about converting money or dealing with foreign exchange rates. This is great news not just for big businesses, but also for everyday people. For instance, Indian people living in the UAE will find it easier and cheaper to send money back home.
In addition to this, both countries have plans to connect their quick payment systems. This would make money transfers between the two countries even smoother and more cost-effective. Imagine being able to instantly send money to a friend or a business in the other country – that’s the goal here. This kind of ease in money transfer usually leads to less expense, which is a win for everyone involved.
Integrating Card Payment Systems
One of the key elements of this collaboration is the plan to link their respective card payment systems – India’s RuPay switch and the UAE’s UAESWITCH. The idea behind this move is to allow the cards from one country to be accepted seamlessly in the other, creating a smooth process for card transactions.
The UAESWITCH was introduced by the Central Bank of the UAE in 1996 with the primary goal of connecting all UAE banks’ ATM networks. It has since grown to offer both regional and international connectivity with other national systems similar to it.
By integrating the two countries’ card switches, residents will be able to use their domestic bank cards when traveling between or conducting transactions with the other country. This step would greatly simplify the process of spending and withdrawing money for both tourists and business travelers alike. The card integration underscores the commitment of both nations to foster a more fluid and user-friendly financial environment.
Linking Payment Messaging Systems
Another significant aspect of this agreement is the plan to connect the payment messaging systems of the two countries. Payment messaging systems are the digital pathways that allow banks to send each other information about financial transactions.
The Reserve Bank of India (RBI) has confirmed that the two countries are keen to intertwine their payment messaging systems. This step would ease the process of sending financial messages bilaterally, ensuring that the details of transactions flow smoothly and quickly between the two nations.
This initiative would significantly enhance the efficiency of cross-border transactions. By providing a more streamlined communication pathway between banks in the two nations, this linkage can reduce delays and improve the overall experience for customers carrying out international transactions. It’s a strategic move aimed at further enhancing the economic bond between the UAE and India.
Amplifying Economic Collaboration
Additionally with the currency agreement, both nations have committed to an expanded economic partnership. The UAE’s Minister of Economy, Abdullah Al Marri, has detailed a package of initiatives and action plans to initiate growth in emerging economic sectors within both markets.
This strategic endeavor targets a wide range of sectors including the circular economy, tourism, aviation, entrepreneurship, small and medium enterprises, renewable energy, technology, digital transformation, and transportation. The ultimate goal is to stimulate the growth of startups from both the UAE and India, thereby increasing their contributions to their respective economies.
By nurturing these sectors, the UAE and India aim to foster innovation and growth in their markets, ultimately contributing to a significant rise in the Gross Domestic Product (GDP) of both countries. This holistic approach goes beyond merely facilitating financial transactions and seeks to build a stronger and more diversified economic relationship between the two nations.
Enhancing Non-Oil Foreign Trade
There’s more to the UAE-India partnership than just financial systems. The non-oil foreign trade between the UAE and India has witnessed a remarkable increase, reaching Dh188.8 billion ($51.4 billion) in 2022. This constitutes a 15% growth compared to the previous year.
This robust growth in trade comes on the heels of the Comprehensive Economic Partnership Agreement (Cepa) that came into effect a year ago. As Dr. Thani Al Zeyoudi, the UAE’s Minister of State for Foreign Trade, explains, the bilateral non-oil trade volume hit $50.5 billion in just the first year of Cepa’s implementation.
The trade growth under Cepa is seen as a testament to the Agreement’s success and a signal of the strengthening strategic relations between the two nations. Furthermore, Dr. Al Zeyoudi has expressed confidence that the current growth trajectory could help achieve an annual non-oil trade volume of $100 billion by 2030.
Cepa, which was first signed in February of the previous year and implemented in May, has facilitated this growth through a variety of benefits, including expanded market access, simplified customs procedures, and a competitive environment governed by transparent and clear rules. This has added a fresh dimension to the UAE-India economic relationship, emphasizing their mutual commitment to enhance trade and economic collaboration.
Conclusion
In conclusion, this new agreement between the UAE and India makes it easier for these two nations to do business together. By using their own currencies and connecting their payment systems, they’ve made trade more straightforward and less costly. This partnership is a great step forward and could be an example for other countries to follow. Overall, it shows how working together can help countries grow and succeed.