Cross-border settlements using local currencies to settle trade and direct investments have taken shape and will strengthen further on the back of strong intra-Asean trade said Bank Negara Malaysia governor Tan Sri Muhammad Ibrahim.

The data, in terms of trade and investment, looks very promising and provides opportunity for settlement in local currencies, he said in his opening remarks at the launch of local currency trade settlement between Bank Indonesia and Bank Negara Malaysia and Bank Indonesia and the Bank of Thailand in Jakarta.

Bank Negara Malaysia announced seven banks for these frameworks, enabling them to provide a wider range of financial services under their respective jurisdictions using the rupiah, baht and ringgit.

They are Maybank Bhd, CIMB Bhd, RHB Bhd, Public Bank Bhd, Hong Leong Bank Bhd, Bangkok Bank Bhd United Overseas Bank (UOB) Bhd and Bank of Tokyo-Mitsubishi (BTMU) Bhd.

The collaboration, said Muhammad, would further promote cross-border settlement for bilateral trade and investments.

“Last year, intra-regional trade contributed US$521 billion or 23.5 per cent of total trade while intra-Asean investments rose to a record level of US$24 billion in 2016 and accounted for 25 per cent of total FDI flows into the region,”he said.

The event also marked the expansion of the framework between BNM and Bank of Thailand. Also present at the event were Agus Martowardojo and Veerathai Santiprabhob, governors of Bank Indonesia and Bank of Thailand respectively.

Both Indonesia and Thailand are important partners to Malaysia both in trade and direct investments where there is continuous growth propelled by inter-company linkages and cross-border investments.

Although in 2016, Malaysia shared a bilateral trade volume of US$13.8 billion with Indonesia and US$13 billion with Thailand, only 5.8 per cent and 11.4 per cent of our trade with Indonesia and Thailand, respectively were settled in local currencies.

“This is an enormous business opportunity for the financial sector, which has yet to be realised. “he added.

On the investment front, Malaysia has invested US$13 billion and US$2 billion of direct investments into Indonesia and Thailand, as at second quarter of 2017.

“The completion and enhancement of the frameworks is an important step towards the use of local currencies to support cross-border settlements for trade and direct investments among the three countries.”

Muhammad said it is an opportunity to mitigate the impact of volatilities in major trading currencies on regional trade and investment activities.

An enabling environment for the effective use of local currencies will bring about greater cost efficiency and stability for businesses and increase demand for local currency financial products.

The MoU with BOT was signed in 2015 and followed by the MoU with BI last year.

By New Straits Times

https://www.nst.com.my/business/2017/12/313259/local-currency-settlement-framework-launched-7-malaysian-banks-appointed%c2%a0%c2%a0#cxrecs_s

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]