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Rupee, Dirham For Trade UPSC NOTE


  • During Prime Minister Narendra Modi’s recent visit to the UAE, the Reserve Bank of India (RBI) and its Abu Dhabi-headquartered counterpart the Central Bank of the UAE signed two memoranda of understanding (MoUs). 

  • While the first established a framework to promote the use of local currencies for cross-border transactions, the other was for interlinking payment systems.

Why is it significant for exporters?

  • The focus on denominating export contracts and invoices in the local currency helps avert exchange-rate risks (such as when a third currency is being used as a standard), which further facilitates the scope to discover competitive pricing. 

  • It could also lead to enhanced avenues for cooperation among the banking systems of the two countries, thereby contributing to the expansion of trade and economic activity for both. 

  • The major items of export from India to the UAE include mineral fuels, mineral oils and products, bituminous substances, mineral waxes, followed by pearls, precious stones and metals, electrical machineries and equipment, among other things. 

  • The major items imported by India are petroleum crude and petroleum related products. 

  • India-UAE trade rose to $85 billion in 2022. 

  • The UAE was India’s third largest trading partner and second-largest export destination in FY2022-23. Conversely, India was the UAE’s second largest trading partner.

What about the interlinking of payment systems?

  • The second of the two MoUs links India’s Unified Payments Interface (UPI) with its UAE-counterpart Instant Payment Platform (IPP).

  • This is alongside the linking of card switches, that is, RuPay switch and UAESWITCH. 

  • Card switches entail facilitating communications and transactions between different payment service providers. 

  • The agreement would also explore linking of payment messaging systems of the two countries.

  • The UPI-IPP linkage would enable users in either country to “make fast, convenient, safe, and cost-effective cross-border fund transfers”. 

  • As for card switches, the regulator stated, it will “facilitate mutual acceptance of domestic cards and processing of card transactions.” 

  • This is relevant to 3.5 million resident Indians living in the UAE (figure as of 2021).



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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: Rupee, Dirham For Trade UPSC NOTE
Rupee, Dirham For Trade UPSC NOTE
Learnerz IAS | Concept oriented UPSC Classes in Malayalam
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