BNM: Trade and invest using regional currencies

Bank Negara Malaysia (BNM) wants more trade and investment deals to be conducted using regional currencies to withstand the impact of a volatile US dollar.

BNM foreign exchange policy deputy director Zaidi Mahyuddin pointed out that a reduction or dispension of USD would also cut business costs.

“Changing local currencies into US dollars and back can lead to losses and make businesses vulnerable to sudden changes in forex rates,” he said at a forum on local currency use hosted by the Indonesian consulate-general in Penang, FMT reported.

Malaysian businesses trading with Indonesia and Thailand are already using rupiah and baht.

In an effort to further boost regional currency use BNM through its financial market committee, is already talking to local financial institutions to get them to push for more local currency settlements.

“We are also working with our central bank partners (in Indonesia and Thailand) to enhance the local currency settlement framework,” he said.

The local currency settlement framework agreement, signed a decade ago, covers retail banking through QR and business invoice payments in ringgit, baht and rupiah.

According to the 2023 BNM annual report, Malaysia’s trade with China and Asean countries rose to 17.1% and 27.3%, respectively, relative to total trade.

BNM has encouraged businesses to use local currencies instead of US dollars for trade since 2001 through various programmes, past reports show.

Currently, seven local banks are permitted to handle rupiah-denominated transactions, while eight Indonesian banks can deal in ringgit. Zaidi said this allowed locals to open accounts in either currency and banks to offer financing in both.

“This helps to facilitate the settlement of trade in goods and services and direct investment in local currency,” he added.