Malaysia optimistic on RMB transaction

17  January 2013

KUALA LUMPUR — The use of China’s renminbi in international transaction and investment has great potential, and Malaysia could help to realize it in certain areas such as renminbi bond and Islamic bond, Malaysia’s top central banker said Thursday.

China’s economic development in the global shift after the financial crisis and the growing influence of renminbi ushers Malaysia into a new exciting era, said Zeti Akhtar Aziz, Governor of Bank Negara Malaysia in her key note speech during the Seminar on “Renminbi Settlement for Trade and Investment in Malaysia.”

The use of renminbi for trade settlement provides a natural hedge for businesses with renminbi obligations, Zeti said, adding that it also generates cost savings and minimizes exchange rate risks, particularly the exposure to exchange rate fluctuations of a third currency.

“While the dollar will continue to remain an important currency for settlement of trade obligations, the availability of renminbi would provide companies an additional currency for such trade settlement,” She told some 300 local bankers and investors at the seminar.

Malaysia has been active in promoting the use of renminbi in cross-border trade and investment.

In 2009, Bank Negara Malaysia and the People’s Bank of China entered into a currency swap deal, and the agreement was extended by three years earlier this year with the size increased to 180 billion yuan (90 billion ringgit).

The Malaysian central bank in March also expanded its Real-time Electronic Transfer of Funds and Settlement System by adding Renminbi Settlement Service, while appointed the Bank of China Malaysia as the onshore settlement institution of Services.

Malaysia could play a role in the internationalization of renminbi in the future, Zeti said.

She pointed out that raising fund in renminbi has emerged as a further form of business in the Malaysian financial system, either through the conventional channels by the banking institutions or the issuance of renminbi instruments in the bond and Islamic bond or sukuk market in Malaysia. “Malaysia is well positioned to realize this growth potential in renminbi bond and sukuk, given our market size and supporting infrastructure.”

“Malaysia not only has the largest debt securities market in Southeast Asia, but it is also a leading international center for sukuk issuance. Both markets are evolving as a multi-currency bond and sukuk market,” she added.

The trade between China and Malaysia has been flourished in recent years. Malaysia is China largest trading partner within the ASEAN region, and China is Malaysia’s largest trading partner globally, accounting for 14 percent of latter’s total trade, according to Zeti.

During the briefing on China’s Policies on Cross-Border Renminbi Foreign Direct Investment, Dr. Wang Jun of China’s Ministry of Commerce pointed out that the size of the mutual investment between China and Malaysia was relatively small comparing to the total external investment volume of the two countries.

“Therefore, the mutual investment between China and Malaysia still has enough room for improvement, and China’s new policies on cross-border renminbi payment would bring positive changes.”