UAE, India in talks to settle non-oil trade in rupee

In Davos, the Emirates has signed several partnership agreements with the World Economic Forum to enhance cooperation in strategic sectors and areas of global interest

By Isaac John

Published: Fri 20 Jan 2023, 5:43 PM

Last updated: Fri 20 Jan 2023, 6:25 PM

The UAE has started discussions with India and China to trade non-oil commodities in their respective currencies, rupee and yuan.

Dr Thani bin Ahmed Al Zeyoudi, UAE’s Minister for Foreign Trade, said in Davos that discussions with India, one the largest trading partners of the Gulf country, on settling bilateral trade in rupee is in the early stage.

The move will have a significant impact on both countries' two-way trade which is expected to hit $100 billion by 2027, following a landmark Comprehensive Economic Partnership Agreement the UAE signed with India in 2022. The pact, which went into force in May, reduces tariffs on almost 80 per cent of all goods and provides zero-duty access to 90 per cent of Indian exports.

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"We have to be realistic, we are planning our budgets based on (US) dollars so it is not an overnight movement," Al Zeyoudi told Reuters on the sidelines of the World Economic Forum. "There is a discussion, not only with India, but we are managing it in a way that does not conflict with the overall interests of the nation."

He said any progress in discussions would have to make sense for all countries involved, and for the UAE, would have to add value to the growth of the Gulf Arab state's economy.

Al Zeyoudi said other countries, including China, had also raised the issue of settling non-oil trade payments in local currencies, but discussions were not at any advanced stage.

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Since most of the currencies of the GCC countries are pegged to the dollar and a large majority of Gulf trade is conducted in US currency, countries such as India and China are increasingly seeking to pay in local currencies for various reasons, including lowering transaction costs.

Following the go-ahead given by India’s Reserve Bank to importers to open special rupee trading accounts called Vostro in 2022, Sri Lanka and Russia were the countries to use the Indian rupee trade settlement mechanism hailed by many as a game-changing initiative that allows using Indian rupees instead of dollars and other major currencies for international transactions.

India is looking to bring more countries that are short of dollars into the mechanism. As a result, several Indian banks have been allowed to open Vostro accounts to facilitate global trade settlement in rupees. India's rupee trade settlement mechanism has also attracted interest from other countries including Tajikistan, Cuba, Luxembourg and Sudan.

Saudi Arabia's finance minister has said the kingdom, the world's top oil exporter and the largest Arab economy, would be open to trade in other currencies, aside from the dollar.

In Davos, the UAE has signed several partnership agreements with the World Economic Forum to enhance the framework of cooperation and joint efforts in strategic sectors and areas of global interest. The agreements were signed during a meeting between Mohammad bin Abdullah Al Gergawi, Minister of Cabinet Affairs, and Professor Klaus Schwab, WEF founder and president.

The WEF is collaborating with the UAE to organize the Annual Meeting of the Global Future Councils 2023, to be held in Dubai, on 16-17 October 2023. The Ministry of Economy of the UAE and The Department of Economic Development of Abu Dhabi signed a grant agreement with the WEF regarding the organization of an annual forum for TradeTech Global: Catalyzing trade technology deployment.

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