UAE and Indonesia advance payment connectivity plans

The UAE and Indonesia are moving to deepen financial cooperation through interconnected payment systems, local-currency transactions and digital innovation aimed at making cross-border transfers faster and less costly.

Central Bank of the UAE Governor Khaled Mohamed Balama discussed the proposals with Indonesia’s Ambassador to the UAE, Judha Nugraha, during a meeting at the central bank’s headquarters in Abu Dhabi. Assistant governors and senior officials from both sides also attended.

The discussions covered possible links between the countries’ payment infrastructure and mechanisms for seamless cross-border settlements. The proposed solutions are intended to improve transaction speed, efficiency, transparency and affordability for businesses and individuals operating between the two markets.

Officials also examined ways to accelerate digital financial innovation as bilateral trade and investment expand. The agenda included the implementation of Local Currency Transactions, which would allow eligible payments to be settled using the UAE dirham and Indonesian rupiah rather than routing them through a third currency.

Such an arrangement could reduce conversion costs and exposure to exchange-rate movements involving intermediary currencies. It may also improve settlement efficiency for importers, exporters and financial institutions, although its practical impact would depend on liquidity, commercial demand, participating banks and the operating framework adopted by the central banks.

Balama said stronger financial and banking ties reflected the broader strategic relationship between the two countries. The UAE central bank aims to develop secure and innovative digital payment solutions capable of supporting economic resilience, bilateral trade and joint investment.

Nugraha highlighted the UAE’s progress in building digital payments infrastructure and said the 50th anniversary of diplomatic relations provided an opportunity to strengthen cooperation between the two central banks. He identified local-currency settlement, payment connectivity and knowledge exchange as areas capable of supporting the wider partnership.

The talks come as central banks across Asia and the Gulf seek to modernise cross-border payments, which can remain slower and more expensive than domestic transfers. International transactions commonly pass through several correspondent banks, adding processing time, compliance checks and foreign-exchange charges.

Connecting national payment systems can shorten that chain by enabling participating financial institutions to exchange payment instructions more directly. Authorities must still resolve issues involving technical standards, cyber security, consumer protection, data governance, anti-money-laundering controls and settlement risk.

Indonesia has made payment connectivity and local-currency use central elements of its financial modernisation programme. Bank Indonesia has promoted the Local Currency Transaction framework for trade and investment settlements while developing the Digital Rupiah under Project Garuda. Its broader payment strategy includes expanding interoperable digital services and improving links with overseas systems.

The UAE is pursuing a parallel transformation. The CBUAE has been developing the Digital Dirham for retail, wholesale and cross-border applications, with the objective of reducing payment costs and enabling faster settlement. It has also participated in multilateral central bank digital currency projects designed to test direct cross-border transactions using central bank money.

Domestic payment volumes underline the scale of the UAE’s digital shift. The UAE Funds Transfer System processed about 110 million transactions during 2024, while the Instant Payment Instruction platform handled 67.5 million. These networks form part of the infrastructure supporting the central bank’s ambition to establish the country as an international centre for financial technology and digital payments.

Closer payment links would also reinforce the UAE–Indonesia Comprehensive Economic Partnership Agreement, which entered into force in 2023. The trade pact provides improved access to Indonesia’s market across more than 90 per cent of tariff lines and covers 94 per cent of the value of trade, alongside provisions supporting services, investment and cross-border commerce.

The next stage will require central bank and industry-level work to determine whether cooperation takes the form of a direct retail payment link, an interbank settlement mechanism, a local-currency framework or a combination of these models. Commercial banks, payment operators and technology providers would then need to align their systems with the agreed regulatory, technical and security standards.