India, UAE central banks discuss mechanism to trade in local currencies

The central banks of India and the United Arab Emirates (UAE) are discussing the creation of a mechanism to engage in bilateral trade in local currencies, in order to reduce transaction costs for exporters and importers, India's ambassador to UAE, Sunjay Sudhir, said on Friday.

- SHREYA NANDI

"India has prepared a concept paper (regarding rupee-dirham trade) and has shared it with the UAE. UAE's central bank has already designated a nodal person for this. The discussion is now going on between the central banks...[it] will be seen how in a realistic scenario, the whole concept can be operationalised. The objective is very clear-to reduce the cost of transaction," Sudhir told reporters, adding that the idea is not to have trade using a third currency.

Typically exporters and importers lose money on currency exchange. For instance, during trade, rupees are first converted into dollars, which is then re-converted into dirhams. In order to avoid this, central banks are discussing the percentage of trade that can be covered through direct rupee-dirham transactions.