RBI signs agreement with Maldives to boost cross-border transactions using local currencies

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The Reserve Bank of India (RBI) and the Maldives Monetary Authority (MMA) signed a significant Memorandum of Understanding (MoU) on Thursday in Mumbai, aiming to establish a framework for the use of their respective local currencies, the Indian Rupee (INR) and the Maldivian Rufiyaa (MVR), in cross-border transactions.

The MoU, formalised in the presence of RBI Governor Shaktikanta Das and MMA Governor Ali Hashim, marks a milestone in strengthening economic cooperation between the two nations. According to an official statement issued by the RBI, the agreement seeks to promote the use of INR and MVR for a variety of economic and financial transactions between India and the Maldives.

The framework covers current account transactions, authorised capital account transactions, and other mutually agreed-upon financial activities. As per ANI, this initiative is expected to significantly reduce transaction costs and settlement times, thereby enhancing the efficiency of cross-border trade and financial dealings between the two countries.

The RBI explained that this arrangement will allow exporters and importers from both nations to invoice and settle transactions in their domestic currencies. "This will facilitate the development of trading in the INR-MVR currency pair in the foreign exchange market," the central bank noted.

A key aspect of the agreement is its potential to reduce reliance on third-party currencies, such as the US Dollar, for bilateral trade. By enabling direct settlement in INR and MVR, the collaboration is anticipated to streamline trade and optimise financial operations, making the process more cost-effective and seamless.

RBI highlighted, "The use of local currencies in bilateral transactions will contribute to promoting trade between India and the Maldives. It will also deepen financial integration and strengthen economic relations between the two nations."

The initiative underscores the commitment of India and the Maldives to fostering a robust economic partnership. It also aligns with broader regional efforts to promote sustainable growth and enhance economic stability.

This framework represents a pivotal step towards building stronger bilateral ties between the RBI and MMA while encouraging further collaboration in the realm of trade and financial exchange, ANI reports.

The move not only supports trade facilitation but also reinforces India's strategic engagement with the Maldives, showcasing a mutual drive towards shared prosperity.

(With inputs from ANI)