This agreement establishes a framework to promote the use of local currencies—the Maldivian Rufiyaa (MVR) and the Indian Rupee (INR)—for bilateral trade and financial transactions.
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In a significant move to enhance financial cooperation and simplify cross-border transactions, the Maldives Monetary Authority (MMA) and the Reserve Bank of India (RBI) signed a Memorandum of Understanding (MoU) on November 21, 2024, in Mumbai, India. This agreement establishes a framework to promote the use of local currencies—the Maldivian Rufiyaa (MVR) and the Indian Rupee (INR)—for bilateral trade and financial transactions.
The initiative is expected to bring multiple benefits to businesses and individuals in both countries. By enabling direct transactions in local currencies, the agreement will reduce reliance on third-party currencies like the US Dollar, thereby lowering exchange rate risks and transaction costs. This will particularly aid small and medium-sized enterprises (SMEs) engaged in trade, as well as individuals who frequently travel between the Maldives and India for education, medical treatment, or tourism. Additionally, it aligns with broader efforts to deepen economic ties and foster greater financial integration between the two neighbouring nations.
According to MMA, this new agreement will encourage the use of local currencies for current account transections, permissible capital account transections, and other mutually agreed economic and financial transections. Additionally, this initiative will also allow for businesses in both countries to invoice and settle transection in their respective domestic currencies. This framework will further facilitate trading in the MVR-INR currency pair within the foreign exchange market as well.
This initiative is particularly significant for the Maldives as it addresses the ongoing challenges posed by the country's dollar shortage. By allowing businesses and individuals to settle transactions directly in MVR and INR, the reliance on the US Dollar as an intermediary currency is significantly reduced. This not only alleviates pressure on the Maldives' foreign currency reserves but also helps stabilize the exchange rate.
For both countries, this framework will lower transaction costs associated with currency conversion, making cross-border trade and financial exchanges more efficient and cost-effective. Such measures are expected to boost trade volumes and strengthen economic ties between the Maldives and India.
