The UAE and India have reached an important agreement which will enable businesses on both sides to bypass the US dollar or any other foreign currency and trade directly in UAE dirhams and the Indian rupee.
The impending removal of the “middle currency” will not only help expedite smooth and swift direct trade transactions between the two nations but also will save the cost of conversion at every step. The agreement will mean large savings for business communities on both sides as trade between the UAE and India climbs to new highs.
India’s Ambassador to the UAE said that this is in addition to the agreements and memoranda of understanding which were signed during Prime Minister Narendra Modi’s just-concluded two-day visit to Abu Dhabi and Dubai.
Basically, it is a currency swap agreement between the two Central Banks that has been completed and it is going to be exchanged through letters.
Under this, businesses from the two sides will be able to trade directly in rupees and in dirhams and not have to go through US dollars. It makes trade between the two countries more competitive.
Though the dirham has a fixed peg to the US dollar, the currency swap agreement between the UAE and India could favourably impact trade between the two countries as the Trump Administration in the US cements further an expansionary fiscal policy and the US Federal Reserve considers rate hikes.
The impact of US policies on the Indian rupee would be greater and favourable to trade with the UAE since the Indian currency’s value is not pegged to the US dollar but is determined by a basket of currencies.
The reason for the currency swap agreement is evident from UAE-India trade figures. From a mere $182 million in 1982, the current level of bilateral trade amounted to about $53 billion (Dh194.5 billion), according to a joint statement released recently.
Another agreement which has been finalised and will be signed this week is between the financial intelligence units which commits both countries to work more closely together in money laundering, in preventing money laundering that takes place.