India, Maldives sign MoU to promote the use of local currencies in bilateral transactions

New Delhi, Nov 23: The relationship between India and the Maldives is experiencing a quiet yet transformative phase, marked by trust-building initiatives and realistic economic collaborations.

On Friday, November 22, the Maldives Monetary Authority (MMA) and the Reserve Bank of India (RBI) inked a Memorandum of Understanding (MoU) in Mumbai to ease the use of local currencies in bilateral transactions and make life easy for the residents of the neighbouring countries in doing business through local currencies. This looks like a tiny baby step but has a broader output in long-term strengthening ties between the two Indian Ocean neighbours through practical, confidence-building measures, erasing tainted footprints of strained relationships.

The MoU sets a framework for businesses in both countries to settle trade and financial transactions in their respective currencies—the Maldivian Rufiyaa (MVR) and the Indian Rupee (INR).

Covering current account transactions, allowable capital account transactions, and other mutually agreed economic areas, the initiative is expected to lower transaction costs, expedite settlements, and facilitate trading in the MVR-INR currency pair within the foreign exchange market.

The agreement took place just a month after the Maldives President visited India in October 2024. This also was his first visit to India since he took over the office a year ago.

Maldives President has two visits to India since June and the Minister of External Affairs, Dr S Jaishankar’s visit to Maldives marked a reset in the India - Maldives relations, signalling India’s renewed commitment as a big brother of the region and its “India First” approach. India continues to extend a warm welcome, emphasising its readiness to support the Maldives’ economic recovery and sustainable development initiatives.

During the President of Maldives visit to India in October, several key agreements were inked, including a $400 million and ₹30 billion currency swap facility under the SAARC Currency Swap Arrangement (2024–2027).

The agreement allows the MMA to draw funds in dollars, euros, or Indian rupees, is expected to provide much-needed liquidity to the Maldives and stabilise its financial system amid persistent dollar shortages and economic instability in the country.

India pledged additional support for infrastructure projects, including housing developments and a new hospital in Hulhumalé. These initiatives aim to address pressing developmental needs in the Maldives while solidifying India’s role as a dependable partner in the region.

To continue diplomatic momentum Prime Minister Narendra Modi is expected to visit the Maldives in the coming months. The visit when it happens will further cement the friendship and gains made during Dr Muizzu’s trip to India.

The new agreement between MMU and RBI also supports India’s strategic commitment to fostering strong ties with its maritime neighbour, enhancing maritime security collaboration, and supporting the Maldives’ efforts to address climate change—a shared priority for both nations.

The signing of the MoU is symbolic of a broader trend in Indo-Maldivian relations: the adoption of trust-building measures that prioritise economic, defence and financial stability. The India-Maldives framework for currency transactions mirrors a similar agreement signed between the Maldives and the People’s Bank of China (PBOC) earlier this year, the partnership with India holds deeper geopolitical and regional significance.

The use of local currencies in trade will not only ease pressure on foreign reserves but also strengthen the Maldives financial sovereignty.

For India, the initiative not only aligns with its “Neighbourhood First” policy, but it showcases its ability to respond swiftly to regional economic challenges to the neighbouring countries in distress.

These agreements like this MoU carry broader symbolic weight. They reflect a growing alignment of interests and priorities, paving the way for enhanced collaboration in areas such as infrastructure, tourism, education, and maritime security.

The continuing trust-building exercise, even in small steps through agreements illustrates how India and the Maldives are striving to redefine their partnership.

Both countries are focusing on practical solutions that not only address immediate concerns but also build groundwork for a more interconnected lasting and resilient future.

As India and the Maldives continue this journey of trust and cooperation, the impact of these efforts is self-assured to elevate their relationship to new heights, driven not by grand gestures but by steady, incremental progress that benefits both nations.