India, Maldives Strengthen Economic Ties with Local Currency Transactions

In a significant step to enhance economic ties, the Reserve Bank of India (RBI) has announced that trade transactions between India and the Maldives can now be settled in Indian Rupees (INR) and Maldivian Rufiyaa (MVR). This move allows businesses in both countries to conduct transactions directly in local currencies, in addition to the existing Asian Clearing Union (ACU) mechanism.

The decision follows the signing of a Memorandum of Understanding (MoU) between the RBI and the Maldives Monetary Authority (MMA) in November 2024. The agreement establishes a framework to facilitate seamless trade settlements, reducing reliance on third-party currencies such as the US dollar.

The ACU, a regional payment arrangement, currently enables participating central banks to settle transactions on a net multilateral basis. Its members include Bangladesh, Belarus, Bhutan, India, Iran, the Maldives, Myanmar, Nepal, Pakistan, and Sri Lanka. While the ACU mechanism remains in place, the introduction of local currency settlements is expected to simplify transactions, lower conversion costs, and strengthen financial cooperation between India and the Maldives.

The RBI, in a circular issued on Monday, confirmed that the new trade settlement mechanism is effective immediately. The initiative is anticipated to boost trade volumes, ease payment processes for businesses, and enhance financial stability between the two nations. Experts suggest that allowing direct INR-MVR transactions could also help stabilize the Maldivian economy by reducing foreign exchange fluctuations and dependency on the US dollar.

India is one of the Maldives' largest trading partners, supplying essential commodities such as food, medicine, and construction materials. The introduction of local currency settlements is expected to further streamline trade operations and deepen economic ties between the two nations.