The Maldives started with a very limited financial and monetary system, and the main emphasis has always been on exchange rate stability, from 1979 with a pure and then augmented exchange rate fix, via a period of loosely structured discretion from 1986 and then from 1995 with an augmented fix again, accompanied throughout by very slowly upgraded monetary institutions and policy operations but little or no development of financial markets.


Targets and attainment



limited financial system with two (foreign) banks, no central bank but State Trading Organisation (STO) which acts for government and issues currency on behalf of Department of Finance subject to no legal controls, mainly for residual financing of budget deficit; exchange rate determined by market forces, but STO also uses ‘official accounting rate’ for imports and exports which it manages (to finance subsidy on essential imports from tax on fish exports); very small and open economy, high proportion of food and other consumer goods imported, so price level strongly affected by world price movements; some tourism-related use of USD; statistical database poor

unstructured discretion UD


exchange rate fixed on one side vs USD, initially by STO, then from 1981 by new Maldivian Monetary Authority (MMA), which will in time undertake basic central bank functions including those previously performed by Department of Finance and STO, including issue of rufiyaa in place of previous rupee; growth in number of (mainly foreign) banks; rising dollarisation of deposits

pure exchange rate fix PERF


1982 limited reform of foreign exchange arrangements under MMA, appreciation of market exchange rate and phasing out of official accounting rate, with de facto peg to USD; 1982 Maldivian rufiyaa made sole legal medium of exchange; major adjustment of banks’ interest rates 1982; reserve requirements introduced and heavily used; residual domestic financing of often large fiscal deficits;

augmented exchange rate fix AERF


late 1985 rufiyaa linked to (undisclosed) currency basket with frequent adjustments designed to stabilise rate vs USD; restrictions on import finance lead to rise of parallel forex market from 1985; 1987 large devaluation to parallel market rate then managed float (MMA has undisclosed soft targets and dominates forex market); interest rate controls 1987; 1985 credit rationing; 1989 reserve ratios reduced and sectoral credit limits replaced by requirement of prior approval of large loans, within wider programme of liberalisation; periodic monetary financing of fiscal deficits

loosely structured discretion LSD


from late 1994 exchange rate vs USD constant; 1995 MMA starts issuing own CDs on tap to absorb excess liquidity, prior loan approval and credit/deposit ratios replaced by bank-specific quarterly credit ceilings, and interest rates partially liberalised; dollar bank deposits up to 46% of broad money by 1998, later higher; July 2001 devaluation; December 2004 tsunami causes extensive damage, and is met by large monetarily-financed fiscal expansion; from late 2006 weekly auctions of Treasury bills, 2007 legal moves to give MMA some independence (both reforms which had been pushed by the IMF for some 20 years); 2008-9 large shock from GFC affecting tourism, exports and investment inflow, while rationing of forex by MMA leads to re-emergence of parallel market; 2009 government debts to MMA converted to securities, used as basis for OMOs in repos; April 2011 large devaluation and move to wider band, but rufiyaa almost constant at weaker end of band; fiscal and balance of payments deficits persist, together with active parallel market with stable premium; no interbank domestic or forex markets, government debt markets weak, no defined policy rate or corridor; some improvements in statistical database

augmented exchange rate fix AERF

Selected IMF references: RED 1978 pp7-9, 12-13; SR 1978 p8; RED 1979 pp12, 22; SR 1979 pp8-9; RED 1982 pp21-2, 32-3; SR 1982 pp5-6, 12-13, 14; RED 1983 pp18-22, 28; RED 1985 pp48-9; RED 1986 pp29-30, 46; SR 1986 pp4, 9, 17, 19; SR February 1988 pp3, 11, 14; RED December 1988 pp23-4, 36-8; SR 1990 pp13-14; RED 1991 pp26, 29, 43-4; SR 1991 pp11-12; SR 1993 pp10, 11; RED 1994 p25; REDSI 1996 pp31-2, 33, 38, 43-5, 83-5, 86-7, 92; SR 1999 pp13-15; RED 2001 pp17, 18, 29; SR 2001 pp11-12, 13, 14-15; SR 2006 pp4-6, 9, 13-14; SR 2007 pp12-13; SR 2009 pp3-6, 19-20; SR 2011 pp13-14; SR 2013 pp5, 7, 12-13; SI 2015 pp6-12; SR 2017 p14.

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