Intellasia News Services -- Malaysia, China may settle trade in local currencies

Malaysia, China may settle trade in local currencies
Source: 15-JUN-2009 Intellasia | Business Times
15 Jun, 2009 - 7:00:00 AM
China and Malaysia are planning to allow exporters to settle some of their trade in the two nations' currencies after the countries agreed to a currency-swap arrangement in February, Malaysia's central bank said.

The move would give exporters more flexibility and wouldn't replace the US dollar as a trading currency, Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz told reporters at a conference here yesterday. She didn't provide a timeframe on when the plan may be implemented, saying it will be in the "near term".

The swap arrangement "is to facilitate trade and investment between the two countries rather than a liquidity requirement because we have ample liquidity", Zeti said.

"Now we're working on operationalising this arrangement and essentially it's to give the option to exporters and importers to settle in the local currency."

A Chinese woman hugs a large sculpture of a 100 yuan bill in Beijing, China, Thursday, May 21, 2009. The United States along with other nations say the yuan is kept undervalued, giving Chinese exporters an unfair price advantage. Some American lawmakers are demanding punitive tariffs on Chinese imports if Beijing fails to end its currency controls. (AP)

Chinese and Malaysian central banks agreed on an 80 billion yuan (RM41 billion), three-year currency swap in February. The dollar's status as the world economy's sole reserve currency has come into question as leaders of Brazil, Russia, India and China discuss substituting other assets for their dollar holdings amid a ballooning US budget deficit.

"There is now increased currency volatility happening partly because of the global financial crisis that's happening, so there may be a greater motivation" for such currency arrangements, Zeti said. "But it is to give that flexibility, and it's not intended to replace" any currency, she said.

While the world should discuss ideas to reform the global monetary system any talk of dumping the dollar is "unrealistic", China's vice Foreign minister He Yafei said on Tuesday.

Exporters and importers would benefit from "lower transaction costs and less exposure to currency fluctuations," Zeti said. "Now, there are pressures on margins, so any cost-saving will be of value."

The yuan and the ringgit are managed against a basket of currencies. The two countries removed their respective pegs against the dollar in July 2005.

Malaysia's central bank has kept its key interest rate unchanged at 2 percent for the last two meetings, saying previous cuts and government stimulus measures will contribute to a recovery later this year.

"Right now we've said our focus is ensuring access to financing and this is happening through many, many measures," Zeti said. "All these are more important than the cost" of financing.

The impact of the Malaysia's fiscal stimulus plans on the economy will be seen in the second half, she reiterated yesterday.

"Our assessment is that growth will return positive in the fourth quarter on a year-on-year basis," she said. "The improvement will happen in the second half, but the more pronounced improvement will be in the fourth quarter."

http://www.btimes.com.my/Current_News/BTIMES/articles/chettle/Article/