New rules will boost foreign currency in banks, governor says
MMA has introduced new foreign exchange regulations aimed at increasing the flow of foreign exchange into the country's banking system.
The new currency rules are aimed at increasing the amount of foreign exchange entering the banking system and increasing the demand for domestic currency, central bank governor Ahmed Munawwar said on Tuesday.
The Maldives Monetary Authority (MMA) has introduced new foreign exchange regulations aimed at increasing the flow of foreign exchange into the country's banking system and raising demand for the Maldivian rufiyaa.
The new regulations include rules governing foreign exchange transactions and money-changing businesses. Munawwar emphasized that the primary goal is to streamline the economy by ensuring that a larger portion of foreign exchange, especially from the tourism sector, enters the banking system.
"Tourism is the largest dollar earner in the Maldives, yet a significant share of foreign exchange does not reach the banking system. These new rules aim to address this issue," Munawwar said on on state media's Raajje Miadhu programme.
Key objectives of the new regulations include:
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Increasing the percentage of foreign exchange flowing into the country's banking system.
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Boosting demand for the Maldivian rufiyaa
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Strengthening compliance with money-changing business regulations.
Munawwar pointed out that the tourism sector's contribution to foreign exchange in the banking system has declined since the pandemic. Citing statistics, he said:
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In 2019, 74% of the $3 billion generated by tourism entered the banking system.
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Currently, tourism generates $4.5 billion, but only 52% is entering the banking system.
The goal of the new regulations is to increase this percentage. As more foreign exchange circulates within the banking system, local banks will be in a better position to provide loans, including dollar-denominated loans.
"Currently, $4 billion to $5 billion enters the banking system, with $1.8 billion in deposits. This deposit will increase under the new regulations, enabling banks to lend in dollars as well," Munawwar explained.
Although the regulations came into effect today, Munawwar acknowledged the efforts of former MMA governors who contributed to the development of these policies.
Under the new rules, tourism service providers must declare a portion of their foreign currency earnings within a specified period:
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Category A service providers must denominate their total tourist arrivals for the month at a rate of $500 per tourist and declare the amount through a bank by the 28th of the third month following the reporting month.
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Category B service providers must follow a similar process but at a rate of $25 per tourist.
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