In accordance with reports, the Reserve Bank of India (RBI) has urged banks to ask their clients to settle trade between India and the United Arab Emirates (UAE) in Indian rupees or dirhams. According to the report, which cites a government official, the goal is to reduce the outflow of dollars caused by India's trade deficit with the Gulf nation.

This comes just a month after Prime Minister Narendra Modi and UAE President Sheikh Mohamed bin Zayed Al Nahyan discussed developing a bilateral local currency settlement system.

India-U.A.E. trade rose to $85 billion in 2022, making the U.A.E. India's third-largest trading partner for the financial year 2022-23 and India's second-largest export destination. The two countries have set a target to double the non-petroleum bilateral trade to $100 billion by 2030.

India is the United Arab Emirates' second-largest trading partner. India became the first country with which the UAE signed a Comprehensive Economic Partnership Agreement (CEPA) in February 2022. Bilateral trade has increased by about 15% since the CEPA entered into force on May 1, 2022.

Thani bin Ahmed Al Zeyoudi, UAE Minister of State for Foreign Trade, stated on June 12 that the Reserve Bank of India (RBI) and the Central Bank of the UAE will soon sign an agreement to facilitate bilateral trade in rupees and dirhams.

Commerce Minister Piyush Goyal previously told Fortune India that the idea of rupee-dirham trade was discussed in an informal meeting a year ago.