Move from a 'pegged system' to a 'managed float'

On 10th April 2011, MMA and the government announced the change of the country’s exchange rate system from a fixed (pegged to US$) exchange system to a managed float.
Under the new system, Maldivian Rufiyya is allowed to fluctuate against US Dollar within a range of MRF10.28 to MRF15.42.
If a currency is allowed to float, the exchange rate will fluctuate according to the demand and supply of the currency with respect to the compared currencies.
What will be effects of this move?

The possible effects are:

  • The immediate effect will be that the Maldivian Rufiyya will depreciate against US Dollar. This is already happening and was expected since US Dollar was being traded at a much higher rate in the black market compared to the official rates.
  • The expensive US Dollar will increase the market prices of most(if not all) of the imported goods and services. The shop keepers are funny in this case since they have even increased the prices of the items that they acquired when the Dollar was still at MRF12.85. What they don’t realize is that any harm to the economy will in turn harm them too.
  • The depreciation of Maldivian Rufiyya will make imports more expensive and exports cheaper. This will tend to reduce imports and increase exports, leading to an improvement in the balance of payment of the country.
  • The real value of the salaries earned by the employees will be lower. There may be pressure on the government and the businesses to increase the salaries. However, the best option is to reduce expenditure rather than demand for an increase in the salaries.

As individuals, what can we do to help?

There are many things we can do to help our economy recover from the current difficulties. Let us realize something here. Any leakages of foreign currency is bad for our economy and any injection is good for us. Therefore, if there is a way of doing something without leaking our hard-earned money, choose that option, even if that needs a little sacrifice in the short-term. Here are some of the things that I suggest we can do:

  • Try to reduce expenditures. Reduce wastages at home. There are things we do that harm our economy even though we don’t realize it. For example, we leave the electrical appliances on while they are not in use. It is unnecessary consumption of energy. When everybody does that, a lot of fuel is used up at STELCO. To buy fuels, STELCO needs US Dollars. So even our little actions at home is creating demand for dollars and harming our economy.
  • Whenever possible, choose Maldivians for jobs, rather than an expatriate.
    There are many foreign workers. They remit their income in the forms of US Dollars out of our economy.
    Many of them have work permits while others don’t. They have taken control of many aspects of our economy. We have become lazy and let those foreigners do most of the works here. This has increased their earnings. The more they earn, the more they will demand for US Dollars. Remember, any money that we give them is a leakage and harms our economy.
    Therefore we should always think about doing the works ourselves or let a Maldivian do the task.

If we think about our economy first before doing anything, it will benefit all of us. THINK ABOUT THAT!!!!!

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