The Maldives and India, on Thursday, signed a memorandum of understanding (MoU) on the use of local currencies for cross-border transactions between the two nations. The Governor of the Maldives Monetary Authority (MMA), Ahmed Munawar, and the Governor of the Reserve Bank of India (RBI), Shaktikanta Das, signed the MoU on behalf of their respective institutions.
According to the MMA, the agreement stands to encourage the use of local currencies for current account transactions, permissible capital account transactions, and other mutually agreed economic and financial transactions.
It will allow businesses in both countries to invoice and settle transactions in their respective domestic currencies, with the framework aiming to facilitate trading in the Maldivian Rufiyaa and Indian Rupee (MVR-INR) currency pair within the foreign exchange market, the Maldives’ central bank said.
The arrangement will enable businesses in both markets to pay for the import and export of goods and services with their local currencies.
The use of local currencies would also reduce costs and improve settlement times, the MMA highlighted.
“This MoU is 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,” the MMA said in a statement.
The MMA and the RBI, on 7 October, signed a bilateral currency swap agreement enabling the Maldives’ central bank to draw a swap facility under two windows; a USD/EUR window and an INR window, respectively, against MVR. The swap facility would allow the MMA to make multiple drawals up to a maximum limit of US$400 million in addition to INR 30 billion, within the existing ‘Framework on Currency Swap Arrangement for SAARC Countries, 2024-2027’.
The USD/EUR swap facility is aimed at supporting the Maldives’ foreign exchange liquidity requirements, while the INR swap facility would allow trade settlement in local currencies.
