The central banks of India and the United Arab Emirates (UAE) have signed memorandums of understanding (MoUs) to settle trade in their national currencies, and interlink their payment and financial messaging systems.
India’s prime minister Narendra Modi and UAE president Sheikh Mohamed bin Zayed Al Nahyan witnessed the exchange of the two MoUs, with aims including giving a boost to trade between the countries.
The Reserve Bank of India (RBI) and Central Bank of the UAE (CBUAE) are planning to develop a framework that promotes the use of their respective national currencies, the rupee and dirham, in cross-border transactions.
The framework will also seek to ‘streamline’ payment services in both countries through the linkage of their instant payment platforms (IPPs), local payment card systems and financial messaging systems. Such arrangements are a trend in Asia, with central banks including Bank Indonesia, Bank of Thailand, Bangko Sentral ng Pilipinas, Bank Negara Malaysia and the Monetary Authority of Singapore (MAS) involved in numerous joint and bilateral projects to improve payments connectivity.
The RBI-UAE MoUs were signed and exchanged by RBI governor Shaktikanta Das and CBUAE governor H.E. Khaled Mohamed Balama.
RELATED ARTICLE Indonesia and India central banks agree closer co-operation – an article (27 July 2022) on the RBI and Bank Indonesia inking an MoU for closer co-operation in areas including fintech
Rupee and dirham currency promotion
The first RBI-UAE MoU defines a framework comprising ‘elements and measures’ to facilitate the settlement of commercial transactions in rupees and dirhams via agreements between importers and exporters, according to a CBUAE press release.
It also outlines the types of eligible transactions, allows opening and use of correspondent accounts for the benefit of financial institutions in both countries, promotes direct exchange rates between the two national currencies, and provides options for liquidity management in accordance with the laws and regulations of the two countries.
The two central banks will collaborate on promoting the use of their national currencies by ‘supporting the gradual implementation of the framework, exchanging relevant information, and periodically assessing the framework’s effectiveness to identify areas for improvement’, with the central banks aiming to develop the foreign exchange market, encourage direct investment and facilitate financial transfers.
The second MoU intends to ‘consolidate’ co-operation by linking their respective IPPs: India’s well-known Unified Payments Interface (UPI) and the UAE’s IPP, which has been developed by the central bank under its ‘Financial Infrastructure Transformation Programme’ and is currently in a pilot phase. These efforts aim to improve the efficiency of cross-border instant payments through India’s RuPay and UAESWITCH, enabling acceptance of local cards in both countries for ATM cash withdrawals and direct point-of-sale purchases without relying on external payment networks.
The MoU also ‘explores’ the RBI-developed Structured Financial Messaging System (SFMS) and the possibility of linking similar systems between the two countries. SFMS is a secure messaging standard similar to SWIFT, the international financial messaging system used globally.
RELATED ARTICLE Indonesia and UAE central banks ink payments partnership – an article (22 November 2021) on Bank Indonesia and the CBUAE agreeing an MoU to work closely together across three main areas
RBI and CBUAE payments initiatives
The RBI is currently running a global hackathon alongside the Bank for International Settlements (BIS) Innovation Hub focused on developing new solutions to improve cross-border payments. The competition is part of India’s G20 presidency and is the fourth ‘G20 TechSprint’.
India’s central bank and the BIS have invited teams to develop technology solutions related to cross-border payments in three areas: to reduce illicit finance risk around anti-money laundering (AML)/countering the financing of terrorism (CFT) and sanctions; foreign exchange and liquidity technology solutions to enable settlement in emerging market and developing economy currencies; and multilateral cross-border central bank digital currency (CBDC) platforms. India is currently progressing CBDC pilots (for a ‘digital rupee’).
The CBUAE launched its Financial Infrastructure Transformation Programme in February as it looks to ‘accelerate the digital transformation’ of financial services. It comprises nine initiatives in total, including the IPP.
The issuance of a CBDC – a digital dirham – for both domestic and cross-border usage is also planned. The central bank said in February that this would help ‘address the problems and inefficiency of cross-border payments and help drive innovation for domestic payments’.
The majority of the UAE’s estimated population of about 9.3 million are expatriates, and the CBUAE has done a lot of experimentation in the international CBDC arena.
*** Philippines finance secretary Benjamin Diokno and India’s ambassador to the Philippines Shambhu Kumaran last month signed an MoU to enhance co-operation between the Philippines and India in fintech. A joint-working group on fintech will be set up to facilitate inter-governmental discussions to improve policies and regulatory co-ordination; promote co-operation in the development of fintech solutions for the private sector; and ‘develop international standards by encouraging the creation of an international version of application programming interfaces (APIs)’.
Global Government Fintech’s ‘Payments’ section