In a landmark development for the Maldives’ financial sector, President Dr Mohamed Muizzu has ratified the Foreign Currency Act, marking a significant step toward reinforcing the national currency and regulating foreign currency transactions. The bill, passed by Parliament on December 12, 2024, during its 60th sitting of the third session, was officially published in the Government Gazette and will take legal effect from January 1, 2025.
The new legislation introduces a clear framework for managing foreign exchange operations across the country and seeks to curb the widespread use of foreign currencies in local transactions. It aims to strengthen the Maldivian Rufiyaa, improve transparency in foreign currency dealings, and bolster the authority of the Maldives Monetary Authority (MMA) as the central regulator of monetary policy.
Key Features of the Foreign Currency Act
1. Rufiyaa as the Sole Legal Tender for Domestic Transactions
The Act mandates that all domestic transactions must be conducted in Maldivian Rufiyaa (MVR). Foreign currencies cannot be used for services provided or acquired within the country—except in specific circumstances outlined by law. The legislation also prohibits charging Maldivian nationals in any foreign currency for goods or services within the Maldives, reinforcing the sovereignty of the local currency.
2. Regulated Currency Exchange for Businesses
The new law sets out a tiered exchange framework for businesses operating under Maldivian law, particularly in the tourism sector. Businesses must exchange foreign currency from realised sales proceeds with banks operating in the Maldives. These banks, in turn, are required to sell a designated portion of the foreign currency to the MMA.
Businesses are categorised into three distinct groups for exchange requirements:
- Category A: Includes resorts, integrated tourist resorts, private island resorts, and resort hotels. These businesses must exchange either $500 per tourist per month or 20% of gross monthly sales with local banks.
- Category B: Covers tourist hotels, guesthouses, and tourist vessels. These establishments must exchange either $25 per tourist per month or 20% of gross monthly sales.
- Category C: Applies to all other businesses not in Categories A or B but with foreign currency transactions exceeding USD 15 million annually. These businesses are required to exchange 20% of their gross sales.
3. Mandatory Registration and Bank Transfers
Businesses in the tourism sector and those with annual foreign currency transactions exceeding USD 15 million must register with the Maldives Monetary Authority. They are also required to transfer their foreign currency earnings to a local bank, further centralising control over foreign exchange flows.
4. Oversight and Implementation
The Maldives Monetary Authority has been entrusted with the oversight and enforcement of the new law. The MMA is expected to formulate and publish detailed regulations within two months of the Act’s enforcement.
5. Repeal of Prior Regulations
With the enactment of this legislation, several previous regulations will be repealed. These include:
- The Foreign Currency Regulation (Regulation No. 2024/R-91),
- Sub-sections (d) and (e) of Section 24 of the Maldives Monetary Act (Law No. 6/81),
- And other provisions not aligned with the new Act, except where otherwise specified in Sections 22(a) and (b).
Implications for the Economy
The Foreign Currency Act is poised to deliver multiple benefits to the Maldivian economy. By reducing reliance on foreign currencies in domestic transactions, the Act is expected to:
- Enhance demand and confidence in the Maldivian Rufiyaa,
- Improve monetary policy effectiveness through stronger regulatory oversight,
- Increase transparency in the flow of foreign exchange, especially in tourism-related revenue, and
- Ensure fair access to foreign currency reserves by channeling funds through licensed banks and the central monetary authority.
Looking Ahead
As the Maldives prepares for the Foreign Currency Act to come into force on January 1, 2025, businesses, particularly in the tourism sector, are advised to review their foreign currency handling procedures and prepare for compliance. The implementation of this Act marks a pivotal shift in the country’s economic policy—toward a more regulated, transparent, and sovereign financial system.
With clear mechanisms now in place, the Maldives aims to strike a balance between welcoming foreign investment and tourism dollars, while maintaining robust control over its monetary system to ensure long-term economic stability.