On a recent visit to Abu Dhabi, Indian Prime Minister, Narendra Modi, signed a landmark deal with the United Arab Emirates (UAE).
The deal has simplified trade between the two nations by allowing direct use of their local currencies – the Indian rupee (INR) and the UAE dirham (AED). Essentially, this agreement facilitates the smoother operation of cross-border transactions.
A deal has also been signed to integrate India’s Unified Payments Interface (UPI) with UAE’s Instant Payment Platform (IPP). This integration is much like merging two distinct online banking systems to accelerate and streamline financial transfers.
Both Modi and UAE’s President, Sheikh Mohamed bin Zayed Al-Nahyan, were present during the signing of these agreements.
The Reserve Bank of India (RBI) confirmed that the scope of these memorandums extends to all regular and authorized capital transactions, thus offering greater latitude in the financial interactions between the two countries.
According to Reuters, India is planning to utilize this new mechanism to settle payments for oil imports, amongst other commodities, from the UAE, its fourth-largest oil supplier.
To illustrate the extent of their commercial exchange, the bilateral trade between the two nations totaled $84.5 billion from April 2022 to March 2023.
Currently, India, the third-largest global consumer of crude oil, transacts in US dollars (USD). This agreement, however, shows a substantial shift towards the “de-dollarization” of international trade.
It sets up an innovative system encouraging the bilateral use of the rupee and dirham, which could revolutionize how global trade is conducted.
