MMA Governor Ahmed Munawar said the central bank ultimately wants all goods and services in the Maldives to be priced in Rufiyaa.
Mihaaru
The Maldives Monetary Authority (MMA) has outlined a long-term vision to strengthen the Maldivian Rufiyaa and reduce the economy’s dependence on the US dollar by 2030.
MMA Governor Ahmed Munawar said the central bank ultimately wants all goods and services in the Maldives to be priced in Rufiyaa. However, he acknowledged that the transition would need to be implemented gradually, particularly as the tourism industry has operated primarily in US dollars for decades.
According to the Governor, several policy and operational changes would be required before tourism businesses could fully transition to Rufiyaa-based pricing. This includes reviewing the taxes and fees currently paid to the state in US dollars, as these payments would also need to be collected in Rufiyaa under the proposed framework.
Existing arrangements that allow certain salaries to be paid in foreign currency may also need to be reviewed as part of the transition.
Governor Munawar noted that foreign currency currently accounts for more than 40 percent of transactions in the Maldivian economy, demonstrating the country’s significant level of dollarisation.
Monetary policy cannot be effective if there is no demand for the Maldivian Rufiyaa. Since we cannot implement these changes all at once, the MMA’s vision is to realise these transitions by 2030,.
The Governor also stressed that achieving fiscal and budgetary stability would be essential to successfully reducing dollarisation and strengthening the domestic currency.
Addressing the country’s exchange-rate framework, Governor Munawar said a managed-float system would be the most suitable model for the Maldives. Under such a system, market conditions would play a greater role in determining the value of the US dollar, while the central bank would continue to intervene to manage excessive fluctuations.
However, he said the MMA must first build sufficient foreign currency reserves before moving towards such a framework.
Even under a managed float, the MMA must maintain adequate reserves. Whether you look at Singapore or other developed nations, a central bank can only defend its target rate if it has sufficient reserves.
He noted that the country’s current reserve position is not yet strong enough to defend the exchange rate under a managed-float system. According to the Governor, the Maldives would require reserves equivalent to at least three to four months of imports.
Building reserves to that level could take between two and three years, he said.
The MMA’s 2030 vision therefore represents a gradual transition aimed at increasing demand for the Rufiyaa, improving the effectiveness of monetary policy and reducing the country’s long-standing dependence on the US dollar.
