Maldives Plans Local Currency Payments for Indian Imports

The Maldives is in talks with India to settle import payments in Maldivian Rufiyaa (MVR) instead of US Dollars (USD), according to a statement by Mohamed Saeed, the country’s Economic Development Minister. This move signifies the Maldives’ intent to diversify its trade partnerships and potentially establish a similar arrangement with China.

Streamlining Trade with India Through Rupee Payments

In July 2023, the Reserve Bank of India (RBI) included the Maldives in a list of 22 countries permitted to open Special Rupee Vostro Accounts (SRVAs). SRVAs allow foreign nations to hold deposits in Indian Rupees, facilitating trade settlements in local currencies. This initiative aims to streamline bilateral trade and reduce dependence on the volatility of the USD.

Minister Saeed highlighted the significant import volume from India, valued at approximately USD 780 million annually. Implementing Rupee-based payments would eliminate currency conversion hassles and potentially offer exchange rate stability for both nations. Transactions would become more efficient, potentially leading to increased trade volumes.

Beyond India: Exploring Local Currency Trade with China

While discussions with India progress, the Maldives is also exploring options with China, another major import source valued at USD 720 million yearly. The Maldivian government has extended an invitation to the Governor of China’s central bank to discuss the possibility of a currency swap agreement. This pact would enable payments for Chinese imports to be settled in Yuan (CNY) or MVR, fostering local currency trade.

The Maldivian Rufiyaa’s potential appreciation is another factor driving the government’s pursuit of local currency trade. Minister Saeed expressed confidence that a parliamentary majority for the ruling party could strengthen the MVR by 30-40% against the USD within two years. A stronger Rufiyaa would make imports cheaper and potentially boost the Maldivian economy.

The Maldives’ initiative to explore local currency trade with India and China reflects a growing trend among nations seeking to reduce vulnerability to global currency fluctuations and promote regional economic integration. By reducing dependence on the USD, the Maldives can potentially insulate itself from external economic shocks and build stronger trade partnerships with key Asian economies.

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