Introduction and About the MoU

- The Reserve Bank of India (RBI) and the Maldives Monetary Authority have inked a Memorandum of Understanding (MoU).

- The primary purpose for this is to facilitate the use of local currencies, particularly the Indian Rupee (INR) and Maldivian Rufiyaa (MVR), in cross-border transactions.

- The scope of the MoU covers current account transactions, permissible capital account transactions, and other mutually agreed upon economic and financial activities.

 

About Local Currency Settlement System (LCSS)

- LCSS is an agreement between two countries to enable trade transactions to be settled in their respective national currencies, minimising the dependency on a third-party currency like the US dollar.

- The system's purpose is to lower transaction costs, minimise foreign exchange risks, and encourage bilateral trade.

- India has similar arrangements with the likes of the United Arab Emirates (UAE), and is considering forging similar agreements with nations in the Middle East, Africa, and Southeast Asia.

 

Benefits of Using Local Currency

- The use of local currency facilitates trading as exporters and importers can invoice and settle in their own domestic currencies.

- In the foreign exchange market, it also promotes trading in the INR-MVR currency pair.

- It helps optimise transaction costs, reduces settlement time, and strengthens the economic ties between India and the Maldives.

 

India-Maldives Economic Relations

- India and the Maldives share robust economic ties, strengthened by geographical proximity, historical links, and cultural commonalities.

- Bilateral trade has been progressively increasing, with India exporting goods worth US$586.97 million to the Maldives in 2023.

- India is a major investor in the Maldives, with substantial investments in infrastructure, tourism, and other sectors, thus reinforcing the business relationship between the two nations.