Rupee–Dirham Settlement and UPI in the UAE: What It Means for Business

Most trade between countries is still invoiced and settled in US dollars, even when neither side uses the dollar at home. For India and the UAE, two economies with more than US$100 billion of annual trade between them, that has meant two currency conversions on many transactions.

Since 2023, the two countries have been building an alternative. In my view, it is one of the most practical, and least discussed, parts of the India–UAE economic relationship. Here is what it involves and what it could mean for businesses.

What was agreed

On 15 July 2023, the Reserve Bank of India and the Central Bank of the UAE signed two memoranda of understanding.

1. A Local Currency Settlement System

The first MoU set up a framework for using the Indian rupee (INR) and UAE dirham (AED) in cross-border transactions. According to the RBI, it covers all current-account transactions and permitted capital-account transactions, and aims to:

• enable exporters and importers to invoice and pay in their domestic currencies
• develop an INR–AED foreign exchange market
• promote investment and remittances between the two countries

2. Linking payment and messaging systems

The second MoU covers cooperation on:

• linking India's Unified Payments Interface (UPI) with the UAE's Instant Payment Platform
• linking card switches, RuPay with the UAE's domestic switch
• exploring links between financial messaging systems

Subsequent arrangements have expanded UPI acceptance at UAE merchants, including a 2024 agreement between NPCI International and Network International.

What it changes for businesses

Fewer conversions, potentially lower costs

If an Indian exporter invoices a UAE buyer in AED, or a UAE buyer pays in INR, the transaction can avoid conversion through the dollar. That can reduce costs and simplify reconciliation, depending on how banks price the service.

More choice in contracts

Companies now have a regulated, central-bank-backed option for INR or AED invoicing. That gives treasury teams more flexibility in managing currency exposure and in negotiating with partners.

Easier small payments

For travellers, the diaspora, and smaller merchants, UPI and RuPay acceptance can make everyday payments easier. For consumer-facing Indian brands in the UAE, that can matter.

What it does not change

• Currency risk does not disappear. Someone still bears the exchange rate risk between rupee and dirham. The question is who, and how it is managed.
• Banks still set the price. The benefit depends on spreads and fees, which vary by bank and by liquidity in the INR–AED market.
• Customers may prefer other currencies. Many UAE businesses are used to AED or USD pricing. Invoicing in INR may not suit them.
• Regulation still applies. Foreign exchange rules, documentation and reporting in both countries continue to apply.

Practical steps for a business

1. Ask your bank. Check whether it offers INR–AED settlement, at what cost, and with what documentation.
2. Compare the economics. Calculate the all-in cost of settling in INR or AED versus USD for your typical transaction sizes.
3. Talk to your customers and suppliers. Understand their preferences and their banks' capabilities.
4. Update your contracts. Specify currency, exchange rate references and who bears currency risk.
5. Think about pricing strategy. Currency choice affects how customers perceive your price. I discuss this in international pricing strategy.

The political economy

The local currency framework is part of a broader pattern. India has been promoting the international use of the rupee and the global reach of its digital payments infrastructure. The UAE has positioned itself as a financial hub connecting multiple regions and has been building payment links with several countries.

For both, the INR–AED framework complements other pieces of the relationship: the CEPA trade agreement, the Bilateral Investment Treaty in force since August 2024, and corridor initiatives such as IMEC. Each lowers a different kind of friction: tariffs, investment risk, payment costs, logistics.

From a business perspective, the significance is cumulative. No single measure transforms trade on its own, but together they make the corridor more efficient and predictable, which, in my view, is what businesses need most.

My view

The rupee–dirham framework will not replace the dollar in India–UAE trade overnight, and it does not need to. What it does is give businesses a real option that did not exist a few years ago. Companies that understand the option, test it with their banks and partners, and price it into their contracts are likely to benefit as the market for INR–AED settlement deepens.

I focus on India–UAE business; more about my work is on the About page.

This article reflects my personal views and is general information, not financial, legal or regulatory advice. Check current arrangements with your bank and the relevant central bank publications.