Modi’s visit: India, UAE sign pact to trade in local currencies

10 min read
The memoranda were signed by Khaled Mohamed Balama, Governor of CBUAE, and Shaktikanta Das, Governor of RBI.
  • CBUAE and RBI aim to develop the foreign exchange market, facilitate bilateral trade, encourage direct investment, and facilitate financial transfers
  • The pact enables acceptance of local cards in both countries for ATM cash withdrawals and direct point-of-sale purchases without relying on external payment networks

Abu Dhabi, UAE – The Central Bank of the UAE (CBUAE) and the Reserve Bank of India (RBI) on Saturday signed two Memoranda of Understanding (MoUs), which aim to support the rapid growth of trade between the two countries.

The CBUAE and RBI will work together to develop a framework that promotes the use of their respective national currencies, the UAE dirham and the Indian rupee, in cross-border transactions. The framework will also seek to streamline payment services in both countries, benefitting their respective populations, through the linkage of their instant payment platforms (IPPs), local payment card systems, and financial messaging systems.

The first MoU defines a framework comprising various elements and measures to facilitate the settlement of trade transactions in the two national currencies (the UAE dirham and the Indian rupee) per the agreements set between importers and exporters. It also outlines the types of eligible transactions, allows opening and use of correspondent accounts for the benefit of financial institutions in both countries, promotes direct exchange rates between the two national currencies, and provides options for liquidity management in accordance with the laws and regulations of the two countries.

Under this agreement, the two central banks will collaborate on promoting the use of their national currencies by supporting the gradual implementation of the framework, exchanging relevant information, and periodically assessing the framework’s effectiveness to identify areas for improvement.

By establishing a framework that promotes the use of the two national currencies in commercial transactions, CBUAE and RBI aim to develop the foreign exchange market, facilitate bilateral trade, encourage direct investment, and facilitate financial transfers. These efforts will contribute to the continued development of the financial market and support economic growth and financial stability.

The second MoU aims to enable participants to benefit from the services of IPPs and local payment card schemes in the UAE and India. This will be achieved through the direct integration of these systems, ensuring compliance with regulatory requirements in both countries. The agreement explores the possibility of leveraging both parties’ expertise in developing financial messaging systems and exploring potential linkages between similar systems in both countries.

It also intends to consolidate cooperation between the two parties by linking their respective IPPs, developed by the CBUAE under the Financial Infrastructure Transformation Programme and currently in the pilot phase, and the Unified Payments Interface in India. These efforts will help make cross-border instant payments more efficient through UAESWITCH and RuPay Switch, enabling acceptance of local cards in both countries for ATM cash withdrawals and direct point-of-sale purchases without relying on external payment networks. Moreover, the MoU explores the Structured Financial Messaging System developed by the RBI and the possibility of linking similar systems between the two countries.

“Given the rapid advances in technology, innovation, and digital payments, these agreements reflect the CBUAE and RBI’s ambitions to enhance collaboration, share expertise, and leverage digital advances to process and settle cross-border payments more seamlessly and efficiently,” Khaled Mohamed Balama, Governor of CBUAE, said. “This will enable consumers to easily access payment services available in both countries, serving our mutual interests, and support in strengthening the robust bilateral relations and economic partnership between the two countries in line with the directives of our wise leadership.”

He added, “The two Memoranda of Understanding are of great significance as they provide a solid foundation for enhancing cooperation across the financial sector and supporting further trade and investment between the two countries. We look forward to working closely with our partners in India to improve cross-border payments and drive innovation in the financial technology space.”

Full text of India-UAE joint statement

1. President of the United Arab Emirates His Highness Sheikh Mohamed bin Zayed Al Nahyan and Prime Minister of India Shri Narendra Modi met in Abu Dhabi on 15th July 2023.

2. Both sides noted that this was the fifth visit of Prime Minister Shri Narendra Modi to the UAE in the last eight years. Prime Minister Modi last visited the UAE in June 2022 when he visited Abu Dhabi to meet His Highness Sheikh Mohamed bin Zayed Al Nahyan to convey his greetings as His Highness assumed the presidency of the UAE. In 2015, Prime Minister Modi became the first Prime Minister of India to visit the UAE in 34 years. This visit was followed by the visit of His Highness Sheikh Mohamed bin Zayed Al Nahyan to India in 2016, then in 2017, when His Highness Sheikh Mohamed bin Zayed Al Nahyan was the Chief Guest at India’s Republic Day celebrations. Moreover, the India-UAE relationship was formally elevated to a Comprehensive Strategic Partnership during the visit of His Highness Sheikh Mohamed bin Zayed Al Nahyan to India in 2017.

3. The leaders expressed satisfaction that UAE-India relations have witnessed tremendous progress on all fronts. India-UAE trade rose to US$85 billion in 2022, making the UAE India’s third-largest trading partner for the year 2022-23 and India’s second-largest export destination. India is the UAE’s second largest trading partner. In February 2022, India became the first country with which the UAE signed a Comprehensive Economic Partnership Agreement (CEPA). Bilateral trade has increased by approximately 15 percent since the entry into force of the CEPA on 1st May 2022.

4. The leaders noted the significant global roles played by both countries in 2023, with India’s presidency of the G20 and the UAE’s presidency of COP28. The UAE side appreciated the hosting of the Voice of Global South Summit by India in January 2023. The Indian side also commended the UAE for its instrumental role in promoting the Global South’s interests at COP28 and making COP28 a “COP of action.” Both sides also looked forward to further cooperation in plurilateral fora such as I2U2 and the UAE-France-India trilateral cooperation initiative. They noted that such platforms provide greater opportunities for both countries to elevate the partnership to new heights.

5. Today, in Abu Dhabi, the President of the UAE His Highness Sheikh Mohamed bin Zayed Al Nahyan and the Hon’ble Prime Minister of India Shri Narendra Modi witnessed the following:

I. The signing of a Memorandum of Understanding for the establishment of a framework to promote the use of local currencies (INR-AED) for cross-border transactions by Governors of the respective Central Banks.

II. The signing of a Memorandum of Understanding on interlinking payment and messaging systems by Governors of the respective Central Banks.

III. The signing of a Memorandum of Understanding for planning to establish Indian Institute of Technology – Delhi in Abu Dhabi.

6. The leaders discussed that developing the Local Currency Settlement System between the two countries to settle bilateral trade is a reflection of mutual confidence. Moreover, it underlines the robustness of the economies in both countries and enhances the economic engagement between the UAE and India. The leaders expressed their interest in strengthening cooperation in the payment systems area by enabling integration between their instant payment systems to process cross-border transactions between the UAE and India more efficiently. Such cooperation will also include the mutual acceptance of domestic card schemes by interlinking national card switches. Integration between these systems will enhance access to payment services for the benefit of the citizens and residents of the two countries.

7. The leaders reiterated their resolve to further strengthen investment ties between the two countries. In this context, they appreciated the efforts of the bilateral High-Level Joint Task Force of Investments. They acknowledged that the UAE became the fourth largest investor in India in 2022-2023, compared to the seventh in 2021-2022. They appreciated the plan of Abu Dhabi Investment Authority (ADIA) to set up a presence in Gujarat International Finance Tec-City (GIFT City), a financial free zone in Gujarat, in the next few months. This will further facilitate investment opportunities for the UAE in India.

8. The leaders also discussed the significance of the tripartite MoU between the Ministry of Education of India, Indian Institute of Technology (IIT Delhi) and Abu Dhabi Department of Education & Knowledge (ADEK) for the establishment of IIT Delhi – Abu Dhabi. In February last year, during the Virtual Summit between the two leaders, they agreed to establish the Indian Institute of Technology in the UAE. Both sides have worked tirelessly over the past two years to make this vision a reality. The two leaders expressed their endorsement and approval that IIT Delhi – Abu Dhabi will become operational by January 2024 by offering a Master’s program in Energy Transition and Sustainability. Other Bachelor, Master’s and Ph.D. Level programs are expected to be offered from September 2024, in addition to establishing research centers in the fields of sustainable energy, climate studies, computing, and data sciences.

9. The leaders resolved to further enhance bilateral partnership in the energy field, both in oil, gas, and renewable energy. Both sides will take forward their cooperation in Green Hydrogen, solar energy and grid connectivity. Both sides also agreed to increase investment across the energy spectrum, including in India’s Strategic Petroleum Reserve Programme.

10. The leaders acknowledged the joint work on issues of climate change, particularly during India’s presidency of the G20 and the UAE’s presidency of COP28. They resolved to work together to make COP28 a success for all.

11. Recognising the importance of food security, the leaders reiterated their resolve to promote the reliability and resilience of food supply chains and expand food and agriculture trade, including through food corridors projects in India. The UAE side will complete its consultations with various Indian stakeholders swiftly for the early realisation of projects in this area.

12. The leaders highlighted the importance of the health sector and scope of cooperation bilaterally and in third countries by energising ongoing health cooperation and further diversifying it. The potential of both countries to become a reliable alternative in global health supply chains of vaccines and medicines was highlighted. Opportunities for collaboration in the growing health infrastructure in the UAE and India were also discussed.

13. The leaders noted that people-to-people contacts, which date back centuries, are one of the strongest and most important pillars of the historic India-UAE ties. The UAE expressed appreciation that the large Indian diaspora continues to play a significant role in the society and economy of the UAE and further reinforces bilateral relations.

14. The leaders agreed to further strengthen bilateral collaboration to strengthen maritime security and connectivity in the region to promote prosperity in India, the UAE, and the shared neighborhood. They also agreed to enhance defense exchanges, sharing of experiences, training, and capacity building.

15. The leaders reaffirmed their joint commitment to the fight against extremism and terrorism, including cross-border terrorism, in all forms, at both the regional and international levels. They agreed to further deepen their bilateral cooperation in the fight against terrorism, terrorist financing, and extremism. In this context, they emphasised the importance of promoting the values of peace, moderation, coexistence, and tolerance among peoples and stressed the need for all forms of extremism, hate speech, discrimination, and incitement to be renounced.

16. Both leaders emphasised the importance of multilateralism and called for collective action to promote a just, rules-based global order. The two leaders also expressed satisfaction on the coordination between the two sides on UN Security Council matters, especially in 2022, when both countries served as non-permanent members of the UNSC. Prime Minister Modi commended the UAE’s achievements during the UAE’s term as an elected member of the Security Council. The UAE reiterated its endorsement of India’s bid for permanent membership of the reformed UNSC.

17. Prime Minister Modi thanked His Highness Sheikh Mohamed bin Zayed Al Nahyan for his warm hospitality to his delegation. Prime Minister Modi is looking forward to the participation of His Highness Sheikh Mohamed bin Zayed Al Nahyan in the G20 Leaders’ Summit on 9th-10th September 2023 in New Delhi.

18. Both leaders reaffirmed their commitment to further strengthening the Comprehensive Strategic Partnership, exploring emerging areas of collaboration, and promoting peace, stability, and prosperity in the region and beyond.”