OP-ED: Beyond the headlines: Understanding the black market for US dollars and why perception matters

The following is an op-ed by Moosa Hussain.

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The exchange rate of the US dollar has become one of the most discussed economic topics in the Maldives. Social media, messaging platforms, and informal conversations often amplify claims that the “dollar rate has gone up again,” creating a sense of urgency among businesses and the public. While foreign currency availability remains a genuine concern for many importers and travelers, it is equally important to distinguish between market realities and market perceptions.

A black market does not function in the same way as an official foreign exchange market. Unlike the banking system, where exchange rates are determined through established policies and regulated transactions, the black market is an informal network of buyers and sellers operating outside official channels. There is no official authority that sets its exchange rate.

Instead, the rate often emerges from a relatively small number of influential traders who quote prices based on what they believe buyers are willing to pay. In smaller markets, these initial quotations can spread rapidly through brokers, businesses, and social media. Once widely circulated, they may influence expectations across the market.

This is where psychology begins to play an important role.

When businesses or individuals hear that the US dollar has “increased again,” many rush to purchase dollars immediately, fearing that the price will rise even further. This surge in demand can temporarily validate the higher quoted rate. In economics, this is known as a self-fulfilling expectation: people act on the belief that prices will rise, and those actions contribute to the rise.

However, this should not be interpreted to mean that the entire economy has suddenly shifted or that the country’s foreign currency position has fundamentally changed overnight.

In many instances, sensational headlines and unverified reports create the impression that dollars have become completely unavailable. Such messages often overlook an important fact: US dollars continue to be supplied through the official banking system, although access may be prioritized and subject to limits depending on the purpose of the transaction and prevailing foreign exchange conditions.

For many legitimate needs—including approved imports, essential goods, medical treatment, education, and travel—banks continue to facilitate foreign currency transactions within their available allocations and established policies.

Therefore, the existence of a premium in the informal market should not automatically be interpreted as evidence that official channels have ceased functioning. Rather, it reflects that demand outside official allocations exceeds the immediate supply available in the informal market.

Another factor that contributes to market anxiety is the rapid spread of speculative information. A single claim posted on social media or circulated through messaging groups can quickly become accepted as fact without verification. Repeated headlines focusing solely on rising informal exchange rates may unintentionally encourage panic buying, prompting businesses and individuals to seek foreign currency earlier than necessary.

When many buyers enter the market simultaneously, demand increases further, placing additional upward pressure on informal exchange rates. The cycle then repeats itself, creating the impression of an ever-rising market even when the underlying economic fundamentals may not have changed significantly.

This does not mean that foreign exchange challenges do not exist. Like many import-dependent economies, the Maldives faces genuine pressures arising from import demand, international payments, seasonal tourism receipts, and global economic conditions. These are legitimate economic issues that require sound policy responses.

However, it is equally important to recognize that expectations, speculation, and misinformation can amplify these pressures beyond what economic fundamentals alone would justify.

For this reason, public confidence becomes an essential part of economic stability.

Authorities can play a significant role in strengthening confidence through timely, transparent, and consistent communication. Regular public updates on foreign currency availability, official allocations, banking services, tourism foreign exchange inflows, and measures being taken to improve liquidity can help reduce uncertainty.

Where misinformation is circulating, prompt clarification based on verified facts can prevent unnecessary panic. Businesses and the public are generally better able to make informed decisions when they have access to credible and up-to-date information.

At the same time, enforcement agencies should continue monitoring illegal currency trading networks operating outside the regulatory framework. Strengthening oversight of unlicensed foreign exchange activities, investigating market manipulation where evidence exists, and ensuring compliance with existing financial regulations contribute to maintaining confidence in the formal financial system.

Commercial banks also have an important role. Clear communication regarding eligibility criteria, available foreign exchange services, processing times, and priority categories helps customers understand what official options remain available instead of assuming that no foreign currency can be obtained through legitimate channels.

The media likewise carries an important responsibility. Reporting developments accurately, providing appropriate context, and distinguishing between informal market quotations and official exchange mechanisms helps inform rather than alarm the public. Responsible journalism can contribute to market stability by avoiding unnecessary sensationalism while continuing to report legitimate economic developments.

For businesses and individuals, decisions should ideally be based on verified information rather than rumors. Before turning to informal markets, customers should first explore the options available through licensed banks and authorized financial institutions.

The Maldivian economy has repeatedly demonstrated resilience through periods of external economic shocks, global crises, and fluctuations in tourism. Maintaining public confidence requires cooperation between policymakers, financial institutions, businesses, the media, and the public.

Foreign exchange management is ultimately influenced by real economic activity—exports, tourism earnings, remittances, imports, investment, and fiscal policy—not by headlines alone.

While informal market quotations may fluctuate from day to day, they should not be mistaken for the sole measure of the country’s economic health. A balanced understanding of both the official financial system and the informal market allows businesses and citizens to make informed decisions without unnecessary fear.

An informed public is one of the strongest safeguards against speculation. Accurate information, transparent communication, and confidence in regulated financial institutions remain the most effective tools for ensuring that expectations are guided by facts rather than by rumors or market hype.