In a significant move to enhance bilateral trade, the Reserve Bank of India (RBI) announced on Monday that transactions between India and the Maldives can now be settled directly in Indian Rupees (INR) and Maldivian Rufiyaa (MVR). This development offers an alternative to the existing Asian Clearing Union (ACU) mechanism.
The ACU is a payment arrangement among central banks of participating countries, facilitating the settlement of intra-regional transactions on a net multilateral basis. Members include Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan, and Sri Lanka.
This decision follows the signing of a Memorandum of Understanding (MoU) between the RBI and the Maldives Monetary Authority in November 2024, aiming to promote the use of local currencies for bilateral transactions. The RBI’s circular stated, “In the wake of signing of Memorandum of Understanding (MoU)…it has been decided that India’s bilateral trade transactions with Maldives may also be settled in INR and/or MVR in addition to the ACU mechanism, as hitherto.”
The new framework allows exporters and importers from both nations to invoice and settle payments directly in their respective domestic currencies, reducing reliance on third-party currencies like the US Dollar. This shift is expected to streamline transactions, lower costs, and strengthen economic ties between the two countries.
India and the Maldives have historically shared robust economic relations. A trade agreement signed in 1981 facilitated the export of essential commodities from India to the Maldives. Over the years, bilateral trade has grown, with India emerging as the Maldives’ largest trade partner in 2023, with trade volumes nearing $1 billion.
This initiative aligns with India’s broader strategy to internationalize the rupee and facilitate trade settlements in local currencies. The RBI has been proactive in liberalizing foreign exchange regulations to promote cross-border trade, allowing Indian exporters to open accounts in foreign currencies and permitting overseas branches of authorized banks to open rupee accounts for non-residents.
The immediate implementation of this policy underscores the commitment of both nations to deepen economic cooperation and enhance financial integration.
