India, UAE Rupee-Dirham Trade Pact: 5 Advantages From The Deal

The Reserve Bank of India (RBI) and the Central Bank of UAE agreed to allow exporters and importers from either side to invoice and pay in their respective domestic currencies. Let us tell you some quick advantages of the same.

1. No hassles on fluctuations of currency

One of the biggest advantages of the deal is that there would be no exchange rate fluctuations from the deal. This means that exporters are hedged from currency risks. Often currency risks can be a major cause for losses and this Rupee-Dirham Trade pact would now prevent that.

2. Enhanced trade

With easier way to settle trade accounts between the countries it would also mean that trade between the two countries would only increase going forward. For the first time India has achieved achieved $85 billion trade and this will likely increase as the payment and receipts mechanism between the two countries is eased.

3. Reduction in settlement time and reduction in transaction costs

The use of local currencies would optimise transaction costs and settlement time for transactions, including for remittances from Indians residing in UAE.

4. UPI-IPP Linkage to make for safe and cost effective fund transfer

The proposed UPI-IPP linkage will enable the users in either country to make fast, convenient, safe, and cost-effective cross-border funds transfers. The linking of Card Switches will facilitate mutual acceptance of domestic cards and processing of card transactions.

5. Development of an INR-AED market

The MoU covers all current account transactions and permitted capital account transactions. Creation of the Local Currency Settlement System would enable exporters and importers to invoice and pay in their respective domestic currencies, which in turn would enable the development of an INR-AED foreign exchange market.