India, UAE Ditch US Dollar; Sign Pact To Trade In INR & Dirham Directly!
Traditionally, export and import between nations have been done using US Dollar, to keep uniformity and consistency in the prices, and for payments.
In a historic decision, India and UAE have decided to stop using US Dollars for all trade-related activities and directly trade in INR and Dirham, which is the official currency of UAE.
Businesses involved in export and import of goods and services between these two countries are expected to benefit hugely due to this agreement.
India, UAE To Dollar: Thanks, But No Thanks
Traditionally, export and import between nations have been done using US Dollar, to keep uniformity and consistency in the prices, and for payments.
But now, things will change for India and UAE.
Earlier this month, when PM Modi had visited UAE, this was one of the agreements which both countries had agreed on.
Yesterday, this agreement was cemented.
India’s Ambassador to the UAE, Navdeep Suri confirmed this development, when he said,
“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 which means that there is a saving for the business community. It makes trade between the two countries more competitive..”
This is a process known as currency swap, and Central Banks of both the countries would be directly involved in this historic pact.
Why India & UAE Decided To Ditch US Dollar?
Currency conversion value, and the difference in prices of USD, INR and Dirham are the main reasons.
Dirham is pegged against USD, but Indian currency is pegged against a bouquet of currencies, which includes USD. Initially, INR was pegged with UK’s pound, then to USD post-Independence. But due to market fluctuations, India decided to stop pegging its currency against USD exclusively and opted for a bouquet of currencies, which are controlled by RBI for bringing stability to the market.
As Trump led US Govt. is making imports tougher, and opting for anti-globalization strategies, trading in USD can become dicier, as it becomes stronger, harming both India and UAE.
Besides, US Federal Reserve is expected to raise interest rates, further making it difficult to trade in USD.
From mere $182 million in 1982, current Indo-UAE trade stood at $53 billion, which is rising at an unprecedented pace. Depending on USD for trading would have long-term side-effects, which has now been avoided by this currency-swap agreement.
Both countries also signed an agreement for curbing black money laundering between the two nations, by bringing in tougher regulations.
