Nasheed calls for floating exchange rate system

Former president Mohamed Nasheed on Wednesday said the Maldives should move to a floating exchange rate system, arguing that it would address ongoing issues in the foreign exchange market.

In a post on X, Nasheed said a floating exchange rate, in which market forces determine the value of the US dollar, would be preferable to the current fixed exchange rate system. Under the fixed system, the Maldives Monetary Authority sets the rate at which foreign currency is bought and sold.

Nasheed said that devaluing the rufiyaa alone would not resolve market distortions if banks are unable to supply dollars at the official rate.

“The best option for the Maldives is to float the exchange rate completely. The dollar should be priced by the market,” he said.

The official exchange rate is currently set at MVR 15.42 per US dollar. However, the dollar is traded at higher rates in informal markets. Limited access to foreign currency through official channels has led some businesses to source dollars outside the banking system, contributing to higher costs.

Last week, the Maldives Association of Tourism Industry (MATI) quoted the governor of the Maldives Monetary Authority as saying that regulations requiring resort businesses to convert foreign currency earnings into rufiyaa would be repealed. According to MATI, the changes are expected to move the system towards a floating exchange rate.