RBI and UAE Central Bank sign agreements to link UPI Systems & Card Payments

Dubai: Two agreements have been signed between the Reserve Bank of India (RBI) and Central Bank of UAE (CBUAE) in Abu Dhabi to create a framework for cross-border transactions in local currencies and interlinking of payment and messaging systems.

Both the Governors of RBI and CBUAE exchanged the agreements in the presence of Prime Minister of India Narendra Modi and Sheikh Mohamed Bin Zayed Al Nahyan, President of the UAE, the Reserve Bank.

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’.

In order to reduce the dependence on the US dollar, India is promoting cross-border transactions in local currencies.

“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 between both the countries aims to establish a framework for the utilization of local currencies and seeks to implement a Local Currency Settlement System (LCSS).

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.

With the use of local currencies, the transaction costs and settlement time for transactions, including for remittances from Indians residing in UAE would be optimized.

In regarding to ‘Payments and Messaging Systems’, The RBI said that 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.