In a bid to bolster the global presence of the Indian rupee, India and the United Arab Emirates have reached an agreement to utilise their respective local currencies for cross-border transactions

These developments were announced by the Reserve Bank of India, which stated that the two memorandum of understandings signed on Saturday aim to facilitate seamless cross-border transactions and payments, thereby fostering enhanced economic cooperation between the two nations. 

The agreements were formalised during a meeting between Prime Minister Narendra Modi, Reserve Bank Governor Shaktikanta Das, and UAE President Sheikh Mohammed Bin Zayed Al Nahyan in Abu Dhabi.

The pacts will serve as a foundation for conducting rupee-dirham transactions and establishing interconnected payment and messaging systems. Additionally, they will facilitate the integration of the countries’ domestic card switches, namely RuPay and UAESWITCH, enabling the mutual acceptance and processing of card transactions. 

These initiatives are closely linked to Prime Minister Modi’s aspirations to elevate the international stature of the Indian rupee and position India as a viable alternative to China in the manufacturing sector. However, according to a recent report by Bloomberg News, progress in this regard has been limited thus far.

While the current volume of local currency trade remains modest, estimated at around 10 billion rupees ($120 million) since the inception of the project, it pales in comparison to India’s total goods trade, which amounted to $1.2 trillion in the previous fiscal year, according to individuals familiar with the matter. 

Nonetheless, the agreements reached on Saturday are expected to streamline financial flows between the two nations. Notably, the UAE plays a crucial role as a source of employment for overseas Indians and accounted for 18% of the total remittances sent back to India in the 2020-21 period, second only to the United States, as stated in a government announcement made in February. 

The World Bank estimates that the total remittances to India in 2022 reached $111.2 billion.