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RBI, UAE Central Bank Sign Agreement to Facilitate Trade in Local Currencies

The Reserve Bank of India (RBI) and the Central Bank of the United Arab Emirates (CBUAE) have signed an agreement to facilitate trade in local currencies. The agreement, which was signed in Abu Dhabi on March 16, 2023, will allow businesses in India and the UAE to settle their trade transactions in rupees and dirhams, respectively.

This is a significant development, as it will reduce the need for businesses to use the US dollar in their cross-border transactions. The use of the US dollar as a settlement currency can be costly for businesses, as they have to pay foreign exchange fees. By using local currencies, businesses can save money and improve their efficiency.

The agreement between the RBI and the CBUAE is also a sign of the growing economic ties between India and the UAE. The two countries have a free trade agreement in place, and they are working to further deepen their economic cooperation. The agreement on trade in local currencies is a major step in this direction.

The agreement is expected to come into effect in the next few months. Once it is in place, it will make it easier for businesses in India and the UAE to trade with each other. This will boost trade between the two countries and help to create jobs and economic growth.

This agreement can have certain benefits as:

  • It will reduce the cost of cross-border transactions for businesses.

  • It will improve the efficiency of cross-border payments.

  • It will promote trade between India and the UAE.

  • It will help to reduce India's dependence on the US dollar.

The agreement is a significant step forward in the economic cooperation between India and the UAE. It is expected to have a positive impact on trade and investment between the two countries.

The LCSS and payments partnership are set to fuel bilateral trade and investments between India and the UAE. By eliminating the dependence on a third-party currency, businesses can now transact directly in their local currencies. This not only mitigates exchange rate risks but also streamlines the entire process, making it more attractive for entrepreneurs and investors on both sides.

The newfound ease of doing business is poised to attract more investments, bolstering economic growth and fostering a climate of innovation and entrepreneurship. Moreover, with lower transaction costs, businesses can allocate more resources to strategic initiatives, ultimately contributing to overall economic development.

Complementing the LCSS and payments linkage, both countries are exploring the integration of their payments messaging systems. India's Structured Financial Messaging System (SFMS) is envisioned to harmonize with the UAE's messaging system, adding yet another layer of efficiency and transparency to the entire financial ecosystem.

This seamless messaging integration will enable smoother communication between financial institutions, ensuring that vital information flows securely and accurately, thus reducing delays and errors.


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