India and The UAE : In a remarkable and unprecedented development, India and the UAE have embarked on a trailblazing journey by adopting a new approach to settle their crude oil transactions – the Cross-Border Currency Settlement system. The Indian rupee and the UAE dirham will take center stage in this revolutionary transaction, poised to redefine the landscape of international trade. This pivotal moment is scheduled to unfold today, Monday (Aug 14), signifying a monumental leap forward as both nations embrace this transformational shift. This historic event follows the Memorandum of Understanding (MoU) inked during Prime Minister Narendra Modi’s visit to the UAE on July 15.
The cornerstone of this transformative move is the introduction of the Local Currency Settlement (LCS) System, a collaborative effort facilitated by the Reserve Bank of India and the Central Bank of the United Arab Emirates. This trailblazing initiative establishes a pathway for seamless cross-border for India and The UAE transactions utilizing the rupee and dirham.
At the forefront of the benefits offered by this pioneering LCS system is the dramatic reduction in transaction time and costs. By circumventing the need for intermediary currencies, both nations India and The UAE stand to achieve substantial savings on foreign exchange expenses, ushering in an era of heightened economic cooperation. The reliance on national currencies not only amplifies economic resilience but also cements the foundation of bilateral relations, underlining the shared commitment to prosperity. The added advantage of directing surplus balances in local currencies toward investments in diverse local assets, including corporate bonds, government securities, and equity markets, further propels the economic synergy.
The imminent transaction set to transpire on Monday represents a watershed moment in oil trade, setting a trail ablaze for a future illuminated by similar currency transactions. The efficacy of the LCS system has already demonstrated its prowess. In a noteworthy inaugural transaction between the two nations India and The UAE, 25 kilograms of gold were exchanged by a prominent UAE gold exporter, with an invoice amounting to approximately Rs 128 million ($1.5 million).
India and The UAE & Triumphant Execution
The triumphant execution of this inaugural transaction serves as a resounding testament to the viability of this ingenious mechanism, particularly in the context of commodities such as gold, gems, and jewelry, which form the cornerstone of trade between India and the UAE. The preceding year witnessed a staggering two-way trade tallying up to US$ 20 billion, encompassing a significant 42 per cent of the total non-oil trade between these dynamic partners.
Recent times have borne witness to India’s resolute endeavors in promoting the global utilization of its national currency, the Indian rupee. Collaborative partnerships with banks spanning across 22 different countries have facilitated the establishment of specialized rupee vostro accounts within domestic banks, laying the groundwork for seamless trading in national currencies.
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