BNM’s local currency settlements to start next year


BANK Negara Malaysia (BNM) recently launched the local currency settlement frameworks with Bank Indonesia, while expanding its baht/ringgit agreement with Bank of Thailand (BoT).

In a joint statement yesterday, the central banks said the frameworks are aimed at promoting a wider use of local currencies to facilitate and boost trade and investment in the three countries, while strengthening regional financial cooperation between the central banks.

The deal is also in line with the two bilateral memoranda of understanding reached between the three central banks on Dec 23 last year, and the frameworks are to be operational from Jan 2, 2018, onwards.

According to statistics from the Malaysian central bank, intra-regional trade contributed to US$521 billion (RM2.13 trillion) or 23.5% of the total trade recorded for 2016, while intra-Asean investments hit a record US$24 billion to account for 25% of total foreign direct investment flows into the region.

The central bank also stated that although it shared a bilateral trade volume of US$13.8 billion with Indonesia and US$13 billion with Thailand, only 5.8% and 11.4% of trade with Indonesia and Thailand respectively were settled in local currencies.

For the settlement agreement with Indonesia, CIMB Bank Bhd, Hong Leong Bank Bhd, Malayan Banking Bhd (Maybank), Public Bank Bhd and RHB Bank Bhd are the Malaysian banks appointed to support the operationalisation of the rupiah/ringgit framework, alongside appointed Indonesian banks.

Malaysia’s central bank and BoT also expanded their settlement framework to include direct investment after first launching the framework back in March 2016. CIMB Bank, Maybank, Public Bank, RHB Bank, Bangkok Bank Bhd, Bank of Tokyo-Mitsubishi UFJ (M) Bhd and United Overseas Bank Bhd, alongside seven Thai banks were also appointed to support the agreement.

In the second quarter of this year, Malaysia invested US$13 billion and US$2 billion in direct investments into Indonesia and Thailand respectively.

Beyond strengthening trade ties between the three countries, the currency settlements will also serve to offset the impact of volatilities in major trading currencies on regional trade and investment.