India, UAE to set up rupee-dirham trade mechanism to settle bilateral transactions

India and the United Arab Emirates (UAE) have signed a Memorandum of Understanding (MoU) to set up a framework to strengthen the use of local currencies for cross-border transactions. The Reserve Bank of India Governor Shaktikanta Das and the Central Bank of UAE (CBUAE) Governor Khaled Mohamed Balama on Saturday signed two Memorandums of Understanding (MoU) to strengthen the use of local currencies for cross-border transactions and for interlinking their payment and messaging systems. “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 RBI said in a statement on July 15. “The MoU covers all current account transactions and permitted capital account transactions,” the Indian central bank added. The signing of the MoU is India’s latest move to increase the use of the rupee to settle international transactions. Over the last one-year, Indian authorities have tried to push the use of the rupee globally, with the RBI announcing the setting up of a mechanism to settle global trade in rupees in July 2022. Instead, India continues to use US dollars to pay for the majority of its oil imports from Russia, with only a small portion being paid in a mix of currencies, including dirhams and the Chinese Yuan, Moneycontrol reported on July 14 quoting a government source.

At present India, the world’s third-biggest oil importer and consumer and whose central bank last year announced a framework for settling global trade in rupees, pays for UAE oil in dollars.

Bilateral trade between India and UAE was $84.5 billion in 2022/23.

India is keen to push similar local currency arrangements with other countries, as it looks to boost exports amid slowing global trade.

An official aware of the details told Reuters that India could make its first rupee payment for UAE oil to Abu Dhabi National Oil Co (ADNOC).

The Reserve Bank of India will release guidance for banks on rupee trade in two to three days after resolving teething issues, another official told Reuters on Friday. The oil-rich gulf states import as much as 80-90% of their food and want to secure their supply chains. The United Arab Emirates has pledged $2 billion to help develop a series of “food parks” in India to tackle food insecurity in South Asia and the Middle East. India and the United Arab Emirates have mutually agreed to raise non-petroleum bilateral trade to $100 billion by 2030, India’s trade minister said last month. The UAE also acts as a trading hub for further access to markets in Africa and Europe. With inputs from agencies.