The Reserve Bank of India and the Central Bank of the UAE (CBUAE) signed two MoUs to promote local currencies for cross-border transactions and to link their payment system UPI with the UAE’s Instant Payment Platform (IPP).
Key Agreements
LCSS
- It covers all current account transactions and permitted capital account transactions.
- The LCSS will enable exporters and importers to pay in their respective domestic currencies and enable the development of an INR-AED forex market.
- It will reduce transaction costs and settlement time, including for remittances by Indians in the UAE.
- India could use this mechanism to pay for imports of oil and other commodities from the UAE, its 4th largest energy supplier (in FY 22-23).
UPI-IPP
- The central banks of both countries have signed to cooperate on linking India’s Unified Payments Interface (UPI) with the UAE’s Instant Payment Platform (IPP) and RuPay switch and UAESWITCH.
- The UPI-IPP link will enable users in both countries to make fast, safe and cost-effective cross-border transfers.
- The linking of card switches will facilitate the mutual acceptance of domestic cards and the processing of card transactions.
- The MoUs were signed by the respective Governors of the RBI and the Central Bank of UAE.
- They will also explore the linking of India’s Structured Financial Messaging System (SFMS) with the payments messaging system of the UAE.
IIT Delhi campus to be set up in Abu Dhabi
- An MoU was signed for establishment of IIT Delhi campus in Abu Dhabi.
- The new MoU is an addition in the ‘IITs go Global’ campaign.
- This will be the second international IIT campus after IIT Madras Zanzibar, Tanzania.
- The degrees will be offered starting 2024 with courses covering several areas such as Energy and Sustainability, AI, Computer Science and Engineering, Healthcare, Mathematics and Computing and other disciplines of engineering, sciences and humanities.
Significance of Rupee Based Cross Border Transaction
- India is looking to work out a way to mitigate exchange rate risks in the rupee-based trade to limit losses for Indian exporters.
- The rupee-based transaction is part of a concerted policy effort by India to Internationalize the Rupee to bring down the dollar demand.
- Apart from Russia, countries in Africa, the Gulf region, Sri Lanka and Bangladesh had also expressed interest in trading in rupee terms.
- The RBI’s plan to settle international trade in the local currency will let importers make payments in the rupee, which will be credited to the special account of the correspondent bank of the partner country, while exporters will be paid from the balances in the designated special account.