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Source: The post is based on the article “Rupee-dirham deal is bilateral: envoy” published in The Hindu on 18th July 2023
What is the News?
The United Arab Emirates Ambassador to India has said that the India-UAE rupee-dirham deal signed is bilateral, and does not carry any agenda to “de-dollarize” the global economy.
What is the India-UAE rupee-dirham deal?
The Reserve Bank of India (RBI) and the Central Bank of the UAE has agreed to establish a framework for enabling the use of the two countries’ local currencies for cross-border transactions.
As per the memorandum of understanding between the two central banks, all current account payments, including those involving the two countries’ exporters and importers, and certain “permitted” capital account transactions could be settled using either the rupee or the dirham.
To facilitate settlement, the two banks are set to put in place a Local Currency Settlement System and at a later date interlink their payments messaging systems.
What are the benefits of India-UAE rupee-dirham deal?
The immediate benefits of this settlement mechanism would be the development of a rupee-dirham foreign exchange market that would help in pricing the two currencies independent of their exchange rates with other currencies such as the dollar and the euro.
Indian and UAE businesses also would not need to factor in exchange rate risks when quoting to supply goods or services to buyers in the other country thus improving the ease of doing business and boosting trade.
What about the Air Service Agreement between India and UAE?
The discussions on revision of the Air Service Agreement (ASA) signed in 2014 between India and UAE has reached a deadlock.
UAE wants more flights to carry passengers from India. But India is reluctant to increase the number of seats between UAE cities including Dubai and some 15 Indian cities as it could take away business from Indian airlines.
As a result, data from travel portals show an increase in airfares of 45-50% to Dubai from New Delhi, Bengaluru and Kochi as compared with pre-COVID fares.
