UAE, India Discussing Mutual Rupee Trade Settlements
Bilateral trade is booming due to new trade agreements as US dollar loses out as preferred currency
The US Dollar continues to lose popularity in international finance and trade, with the UAE and India being the latest countries to consider dumping the dollar and conducting bilateral trade in Indian Rupees. The reason for distrust of the dollar has been its weaponizing by the US Government and in particular the cutting of Russia from the SWIFT banking network system, which is USD denominated. As at early 2022, Russia was the world’s tenth largest economy. The decision to cut Russia of from US dollar usage and freeze its USD and Euro assets has resulted in countries such as India, China, and many others seek alternatives to USD trade in case they too fall foul of US trade and political policies.
India under the Modi government this year has been assertive in its economic clout. Earlier this year India’s Central Bank allowed Rupee settlement of international trade for export promotion schemes. Now, it is negotiating with the UAE to make the base currency for bilateral trade settlements.
The UAE’s Ambassador to India, Abdulnasser Alshaali said that the UAE is India’s third-largest trade partner, with only the US and China having a bigger trade share. India is a major trader not just for the UAE but for other Gulf nations, which is why the Gulf Cooperation Council (GCC) and India are negotiating a free trade agreement. The UAE and India have already signed a Comprehensive Economic Partnership Agreement (CEPA) which came into effect in May this year.
In terms of establishing a Rupee settlement mechanism, the UAE ambassador says that there are ongoing discussions. The two countries have already shared the documents with one another on the proposal and the technical team is doing the required analysis. The decision on when to unfold the Rupee settlement mechanism is expected to be made in early 2023.
Bilateral trade is set to grow at US$5.6 billion per annum from 2022-2028 leading to tremendous opportunities for UAE and Indian exporters. Our comprehensive UAE-India 2022 Bilateral Trade report can be found here.
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