RBI and Maldives Monetary Authority Ink MoU to Foster Local Currency Trade

In a significant move to deepen bilateral financial ties, the Reserve Bank of India (RBI) and the Maldives Monetary Authority (MMA) signed a Memorandum of Understanding (MoU) in Mumbai on November 21, 2024.

This landmark agreement establishes a framework to promote the use of local currencies—the Indian Rupee (INR) and the Maldivian Rufiyaa (MVR)—for various cross-border transactions.

The MoU reflects a shared commitment to fostering economic collaboration between the two nations while enhancing regional financial integration.

Local Currency Trade: A New Era for Indo-Maldivian Economic Relations

Under the new framework, exporters and importers in both countries can invoice and settle trade in their respective domestic currencies. This includes transactions related to trade in goods and services under the current account, as well as permissible capital account transactions. The agreement also provides flexibility to include other economic and financial activities, subject to mutual agreement.

This development is poised to simplify financial processes by reducing dependency on third-party currencies, thereby lowering costs and shortening settlement times for businesses in both nations. It also paves the way for the establishment of trading in the INR-MVR currency pair in the foreign exchange market.

Benefits of Local Currency Trade

This initiative offers several key advantages:

• Cost Efficiency: Eliminates the need for intermediary currencies, reducing transaction fees.

• Faster Settlements: Streamlines cross-border payments, minimizing delays.

• Economic Independence: Strengthens the financial sovereignty of both nations by boosting the use of local currencies.

• Regional Integration: Enhances India’s financial connectivity with South Asia, aligning with RBI’s broader strategic goals.

High-Level Endorsement

The MoU was signed by RBI Governor Shaktikanta Das and Maldives Monetary Authority (MMA) Governor Ahmed Munawar, underscoring the importance both countries place on this collaboration. Commenting on the agreement, the RBI stated:

"The agreement reflects a shared commitment to fostering closer economic collaboration between India and the Maldives."

This partnership marks a milestone in building sustainable economic growth and regional integration, which are critical for advancing financial stability in South Asia.

India and Maldives: A Strengthening Bond

The initiative comes at a time when Indo-Maldivian relations are evolving rapidly. The Maldives, which had expressed reservations about India’s influence in the past, has increasingly turned to India for support, acknowledging the benefits of a closer economic partnership.

This MoU is part of India’s broader efforts to enhance its role as a key regional financial partner. By enabling direct local currency trade, the initiative is set to strengthen the economic interdependence between the two nations and bolster their regional standing.

Conclusion

The MoU between the RBI and the Maldives Monetary Authority represents a pivotal step towards enhancing financial collaboration and promoting economic self-reliance. By encouraging trade in local currencies, the agreement not only reduces dependency on global reserve currencies but also strengthens the financial ties between the two nations.

As this initiative unfolds, it is expected to serve as a model for similar agreements within the South Asian region, reinforcing India’s position as a leader in fostering regional economic integration.