Central banks of India, UAE agree to link UPI systems, card payments

A statement issued by the Reserve Bank of India (RBI) said the agreements were mutually exchanged between the two governors in the presence of Indian Prime Minister Narendra Modi and Sheikh Mohamed Bin Zayed Al Nahyan, the President of the United Arab Emirates (UAE).

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'.

India has been promoting cross-border transactions in local currencies to reduce dependence on the US dollar.

"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 Memorandum of Understanding (MoU) signed between India and the UAE focuses on establishing a framework for using local currencies, namely the Indian Rupee (INR) and the Emirati Dirham (AED), in bilateral transactions.

The objective is to establish a Local Currency Settlement System (LCSS) that encourages the use of these currencies for transactions between the two countries.

The MoU encompasses all current account transactions as well as authorized capital account transactions, providing a comprehensive coverage of financial exchanges between India and the UAE.

"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.

The utilization of local currencies would bring about significant benefits such as optimizing transaction costs and reducing settlement time for various transactions, including remittances from Indian individuals residing in the UAE.

By eliminating the need for currency conversions, this initiative aims to streamline the financial processes, making them more efficient and cost-effective for both individuals and businesses involved in cross-border transactions between India and the UAE.

With respect to the agreement on 'Payments and Messaging Systems', the RBI said 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.

"The UPI-IPP linkage will enable the users in either country to make fast, convenient, safe, and cost-effective cross-border funds transfers," the RBI said.

Additionally, the linking of Card Switches will enable the mutual acceptance of domestic cards and streamline the processing of card transactions between India and the UAE. This collaboration aims to enhance convenience and accessibility for cardholders, allowing them to use their domestic cards seamlessly in both countries.

Moreover, the linkage of messaging systems is intended to facilitate bilateral financial messaging between India and the UAE. This initiative will establish a more efficient and secure channel for financial communication, enabling smoother transactions, information sharing, and collaboration between the two countries' financial systems.