UAE, India Considering Mutual Currency Settlements


Move to use Dirhams and Rupees will Dedollarise Bilateral Trade  

An indication that Washington’s moves to use the US dollar and SWIFT banking networks as trade weapons are having the effect of motivating significant global economies wary of US dollar use is taking place with the latest to consider mutual currency settlements being the UAE and India.

After signing a free trade agreement in May this year, the UAE and India are exploring ways to carry out bilateral trade in national currencies, the Indian Commerce and Industry Ministry said last week. This comes as central banks globally are witnessing a depletion in forex reserves owing to the appreciation in the US dollar and rising oil prices in the backdrop of the Russia-Ukraine conflict.

India’s trade gap with the United Arab Emirates ballooned fourfold in the May-June period, the first two months since the India-UAE free trade agreement came into effect, driven by a jump in oil and gold imports. India’s trade deficit with the UAE widened to US$3.92 billion in the two-months from the US$980 million gap in 2021.

“An important area discussed was the creation of a mechanism for carrying out bilateral trade in national currencies. Referring to the ongoing discussions between the Reserve Bank of India and Central Bank of the United Arab Emirates on Unified Payment Interface (UPI) as a common digital payments platform, both sides agreed to continue discussions,” the Indian ministry stated.

India further informed that the UAE has sought tax incentives for certain UAE sovereign investment entities under the existing UAE-India Tax Treaty and both countries are exploring the establishment of efficient and integrated Single Window Solutions and Virtual Trade Corridors to reduce costs and time involved in trade and investment-related procedures.

The tenth meeting of the UAE-India High-Level Joint Task Force on Investments also took place last week in Mumbai. It was co-chaired by Piyush Goyal, Minister of Commerce & Industry, Government of India, and His Highness Sheikh Hamed bin Zayed Al Nahyan, Member of the Executive Council of the Emirate of Abu Dhabi.

The Joint Task Force was established in 2013 to promote trade, investment and economic ties between the UAE and India. This was the first meeting of the Joint Task Force since the signing of the India-UAE Comprehensive Economic Partnership Agreement (CEPA).

India UAE trade deal was negotiated in record 88 days and was signed between the two sides on 18 February. It is the first major free trade pact signed by the Narendra Modi-led government since it came to power in 2014 and is likely to benefit about US$26 billion worth of Indian products that had previously been subjected to 5% import duty by the UAE. Indian exporters should be looking at the UAE market for opportunities.

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