Maldives-India sign MoU for use of local currencies in bilateral transactions

The central banks of Maldives and India, Maldives Monetary Authority (MMA) and Reserve Bank of Maldives (RBI) have signed a Memorandum of Understanding (MoU) to establish a framework promoting the use of respective local currency in bilateral transactions.

The MoU was signed in India’s Mumbai on Friday by MMA’s Governor Ahmed Munawar and RBI’s Governor Shri Shaktikanta Das.

According MMA, the MoU encourages the use of local currencies for current account transactions, permissible capital account transactions, and other mutually agreed economic and financial transactions. Thus, it will allow businesses in both countries to invoice and settle transactions in their respective domestic currencies.

The framework is also aimed at facilitating trading in the MVR-INR currency pair within the foreign exchange market which will reduce costs and improve settlement time.

MMA said the MoU marks a significant step forward in enhancing trade and financial ties between the Maldives and India. 

“By enabling the use of local currencies for bilateral transactions, it will strengthen economic cooperation, promote trade, and foster closer financial integration between the two countries,” added the central bank.

The execution of the MoU is among several measures taken by the government to alleviate the US Dollar shortage in the Maldives.

Notably, MMA and RBI signed a USD 400 million and INR 30 billion currency swap agreement during President Dr. Mohamed Muizzu’s state visit to India back in October.

The agreement allows the MMA to draw a swap facility under two windows: USD or EUR window and INR window, respectively, against the Maldivian Rufiyaa (MVR).

The swap facility will allow the MMA to make multiple draws up to a maximum limit of USD 400 million in addition to INR 30 billion, within the existing ‘Framework on Currency Swap Arrangement for SAARC Countries, 2024-2027’.

The government also signed an MoU with People’s Bank of China (PBOC) which established the framework for the settlement of current account transactions and direct investment in local currencies in September. The MoU sets the framework for cooperation in promoting the settlement of current account transactions and direct investments in local currencies.