OPSC OAS 2022 PrelimsInternational RelationsQuestion 3
Solved previous year question from the OPSC OAS/OCS 2022 Preliminary Examination (General Studies), with the official answer key and a detailed explanation.
Question
Which of the following statements are correct in respect of Agreement on use of Local Currencies for cross-border transactions"?
(1) India and UAE have signed a memorandum in this Agreement.
(2) This agreement enables a framework for trade settlements in their respective national currencies.
(3) This Agreement was signed by the Prime Ministers of India and UAE
(4) Peekay Intermark Ltd. and Reserve Bank of India were the first users of this system
Which of the statements given above is/are correct?
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Answer & Explanation
Correct answer: (C) 1 and 2
- India and the UAE did sign a Memorandum of Understanding (MoU) for the use of local currencies — the Indian Rupee and the UAE Dirham — for cross-border transactions, as part of deepening bilateral financial cooperation.
- The core purpose of this agreement is to establish a framework enablingtrade and financial settlements in their respective national currencies, reducing dependence on the US Dollar as an intermediary currency and lowering transaction costs.This approach, also known as a Local Currency Settlement System (LCSS)
- The agreement wasnot signedby the Prime Ministers of India and UAE. It was signed by theReserve Bank of India (RBI) and the Central Bank of the UAE, as it is acentral bank-levelfinancial and monetary arrangement, not a heads-of-government level treaty.
- The first users of the India-UAE Local Currency Settlement System (LCSS) were Peekay Intermark Ltd. and YES Bank
