RBI pushes for local currency in India-UAE trade
What's the story
The Reserve Bank of India is encouraging local banks to settle trade transactions between the UAE and India using the Dirham (AED) or Indian Rupee (INR).
This initiative aims to reduce reliance on US Dollar-based transactions and expand INR's global reach.
The move is part of an effort to promote settlement in local currencies with countries where India has a trade deficit. RBI may establish internal targets for the amount of India-UAE trade it wants to shift away from Dollars.
Details
Small companies are being incentivized to engage in INR-AED trade
To facilitate this change, RBI has requested banks to gradually persuade clients to initiate INR-AED trades instead of using dollars.
The central bank has assured the market that it will support banks with INR-AED trades.
However, current trade volumes are low, which may deter corporations from paying for imports entirely in dirhams.
While large ones have been reluctant to engage in non-dollar-denominated deals, banks have incentivized smaller companies by offering discounted service charges.
What Next?
Large corporations slow to adopt non-Dollar deals
To make the move successful, RBI is focusing on persuading large clients and corporations with robust balance sheets to start Rupee-Dirham trades.
For instance, Indian Oil Corporation recently paid Abu Dhabi National Oil Company (ADNOC) in INR for a million barrels of oil.
Despite these efforts, the response from large corporations has been slow, according to a banker at a state-run firm.