With Rupee-Dirham trade, the president of the UAE is betting on the Indian economy and currency
United Arab Emirates is
the first country to include oil and gas in Rupee-Dirham trade. Now, everyone
is watching India’s close allies Saudi Arabia, the second largest exporter of
crude oil to India, and Qatar, the largest supplier of LNG to India, to see if
they will have similar revolutionary faith in India as President Sheikh
Mohammed bin Zayed Al Nahyan and join the local currency trade bandwagon.
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On this three-day trip
to France and Abu Dhabi, away from the eyes of the media, the Modi government
signed its first long-term LNG contracts with French TOTAL in Paris and with
UAE’s ADNOC in Abu Dhabi for 0.8 million metric tonnes and 1.2 million metric
tonnes, respectively, as part of its plan to diversify its energy sources.
Before this, India’s
only long-term deal was for 11.18 MMT of LNG from Qatar, which cost USD 12
billion per year. Every year, India buys about USD 30 billion worth of crude
oil from Saudi Arabia.
While the credit for
the Rupee-Dirham currency settlement goes to RBI Governor Shaktikanta Das for
doing the majority of the work on the Indian side prior to signing the MoU with
the Central Bank of UAE, the acknowledgment on the United Arab Emirates side
goes to Sheikh Mohammed bin Zayed as it sends a global signal about the
strength of the Indian economy and currency.
Due to the close relationship
between Prime Minister Modi and President MBZ, all USD 85 billion in bilateral
trade, including USD 36 billion in oil and gas, will be conducted in local
currency, with the US dollar no longer in play. This latest initiative will be
put to the proof in the coming days, when oil transactions are settled in local
currency.
The RBI and Central
Bank of UAE’s MoU on bilateral cooperation on interlinking payments and
messaging systems (like RTGS and IMPS) will also integrate India’s Unified
Payments Interface and the UAE’s Instant Payments Platform (IPP) and allow two
countries’ card switches—Rupay switch and UAESWITCH—to directly facilitate card
transactions without relying on any third country network.
The LCS system between
India and UAE will reverberate throughout the Middle East and Indian
subcontinent as other key countries want to do the same. Nepal and Bhutan use
Indian currency, but the LCS could influence trade with Bangladesh under Sheikh
Hasina. The LCS links businesspeople through domestic money instead of the
laborious dollar and petro-dollar method.
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