The United States Dollar (USD), notable for its ‘universal’ stamp as a currency is excruciatingly necessary in the Maldivian economy as well. The birth of the tourism industry, well over forty years back had given rise to the exchange and trade of the currency here in the local soils as well.
However, the island nation is no stranger to major predicaments tied to the scarcity of Dollar amid every economic downfall.
With the outbreak of the Covid-19 global pandemic, the entire world has come down towards an economic ‘limbo’ with several major trade activities coming to a halt or finding pauses. And every time such an external factor pushes into the island nation’s economy, the effects are felt at the exchange of US Dollars and its uplifting exchange rates.
Maldives, a country that heavily depends on imported goods, is currently facing the plight of spiking US Dollar exchange rates. The visible scarcity inversely correlating to the demand, meaning the rising demand for it has surged the exchange rates into territories unseen and inexperienced before.
Many industry experts, and field analysts claim the significant hike in the exchange rates have not been precedented before.
The rising demand unmatched with the availability has pushed ‘Black Market’ traders to lift exchange rates close to one singular US Dollar equivalent to MVR19.00 on average. This effect remains consistent in individual money exchangers, foreigners and even registered currency exchange outlets – who face limitations to bring down the rate.
Such currency outlets operate under valid permissions from the central bank of the island nation – Maldives Monetary Authority (MMA). Meaning, the situation is not just made worse exclusively due to activities of ‘Black Marketeers’ but also due to the overall scarcity in the currency.
It is, as many industry experts and trade pundits unanimously coincide, high time that the country’s state powers acted in cohesion to reduce the dangerously growing demands of the US Dollar in Maldives or at least curb the increment on its exchange rate.
On the other hand, the usage and practice of handling or utilizing foreign currency for transactions are evidently different in Maldives when compared with the practices across other countries. It is not lost of many travelers, that they usually have to exchange US Dollars at legally identified and permitted exchanger to the local currency of the country they are visiting following arrival to attend to their transactions.
This is evident in many of the countries neighboring Maldives itself; such as Sri Lanka or India. Transactions from US currency are a rare occurrence. However, this is not the situation here in Maldives since many of the business and service outlets do in fact accept payment in US Dollars. You can acquire service from a restaurant, café or a standard general goods shop and pay them with Dollars and you can literally walk away with a successful transaction.
In many ways, paying to such places here in Maldives in US Dollars can deem you as a “Good Customer” or a “Stand-up Customer”.
Meanwhile, several apartment complexes and buildings on rent here in Greater Male’ Region exclusively accept payments in US Dollars. These are not standard practices in some of the most well achieved and economically established countries, yet for a country that is titillating between regression and recovery Maldives sure seems to have employed such tactics.
The question at this point, will be if the country’s statutory acts and regulations on finance allows such practices to be in place. The simple answer to this would be a negative response – means no. As per the Monetary Regulation by Maldives Monetary Authority (MMA), effective since 1 March 1987, all transactions except for special exemptions must be carried out in local currency – Maldivian Rufiyaa. It also cites that entities and individuals with express permits to trade or maintain transactions in foreign currency are the exempted parties.
In order to find solutions or sustainable approaches to reduce growing demand of US Dollar in Maldives, the country’s state requires to generate income in a visible capacity.
Though Maldives is facing the dire plight of the Covid-19 global pandemic, this too is a situation that will eventually move past us. So, it is paramount that the state seeks ways to reduce recurrent expenses of the state in order to minimize budget deficit, and in turn bring in effect towards reducing the demand on foreign currencies.
The other major solution to curb the growing demand on US Dollars is to increase exportation from Maldives to foreign destinations; this will visibly pull in larger sums of foreign currencies through trade activities and may thus in turn offset scarcity of the Dollar in Maldivian economy.
The current circumstances mandate that Dollar transactions made externally – or foreign currencies traded outside of Maldives – should be limited, while options to acquire US Dollars into the country’s economy should be assessed and sought.
It is also instrumental that fresh impetus is given towards enforcing statutory acts made towards proper financial regulation. State bodies must enforce the existing legal instruments in order to ensure Dollar transactions do not ‘traverse’ outside Maldives, but in fact carry in.
What do you have to say about the fact that the revenues generated from the tourism industry is not being retained in the local banks. In my mind, the economic benefits that we should have enjoyed from the revenue are being enjoyed by other people as the revenues are retained in foreign banks.