BNM governor lays out a comprehensive view of where the nation stands with the depreciating ringgit to the strengthening US dollar
pic MUHD AMIN NAHARUL
“IT WILL be remiss on my part not to speak about the ringgit,” quipped the central bank chief when speaking at the Khazanah Megatrends event the other day. Indeed, it will be equally remiss of this business and finance weekly as well not to discuss the ringgit with all that is happening on the currency front, locally and abroad.
On the whole, Bank Negara Malaysia (BNM) governor Tan Sri Nor Shamsiah Mohd Yunus laid out a comprehensive view of where the nation stands with the depreciating ringgit to the strengthening US dollar.
She captured the scenario well when she said that “we need to be clear that the strength of the dollar is a global phenomenon – not just a Malaysian one.”
Indeed, as she pressed home, the US dollar is at a two-decade high due to the aggressive tightening of monetary policy by the US Federal Reserve which increased its policy rate by 300 basis points this year.
As a trading nation, Malaysia is at the mercy of currency movements. There is little that we can do to fight the US dollar. Any attempt will be futile and costly.
There is also the local angle to the strength of the ringgit. The political shenanigan we witness daily does little to help build the nation’s narrative as a stable and thriving economic spot, worthy of foreign investment money. So, even on that front, there is little that the central bank can do, other than ensure politicians do not take hostage the financial system that is still in decent working order.
Maybe, just maybe, we will see some stability once we go to the
polls. As I mingled with the crowd at the event organised by the sovereign wealth fund Khazanah Nasional Bhd, corporate captains talked about political uncertainties. But their eyes are trained on the ringgit, as well.
There is one little corner that the authorities can step in to ease some tension on the ringgit. They can put pressure to ensure corporations bring back to shore dollars earned from exports and convert them into ringgit.
With the ringgit depreciating to the US dollar as it is, and the situation expected to stay that way for some time, corporations may be tempted to keep export proceeds abroad for just a tad bit longer than required.
To be sure, the central bank has clear engagement rules on this front.
The foreign exchange policy, updated as at June 1, 2022, says an exporter of goods can receive proceeds from its export of goods in ringgit or foreign currency.
“The exporter shall repatriate the export proceeds to Malaysia in full value within six months from the date of shipment. Repatriation up to 24 months is only allowed for reasons beyond the exporter’s control and other permitted reasons,” it adds.
It also states that an exporter can undertake offsetting, netting-off and writing-off arrangements of export proceeds subject to permitted reasons only.
The central bank has to be vigilant in policing this requirement. As mentioned earlier, corporations stand to benefit if they keep export proceeds outside the country. And there are so many ways to do this.
The central bank may have armour in its arsenal. Sometime towards the end of 2016, BNM started compelling corporations to convert to ringgit up to 75% of the export proceeds the moment they get paid by the importer. In other words, exporters were required to bring home the foreign currencies earned from exports almost instantaneously, and convert them into ringgit.
“Before [the 2016 move], the conversion rate was less than 5%,” estimated a senior currency trader.
Along the way, the rules were relaxed, probably to placate exporters and the playing field changed. Now, they can hold export proceeds abroad for up to six months, or more. Last year, it also allowed corporations to retain export proceeds without converting them into ringgit.
So, is a revisit of the earlier playbook in order here? And if yes, will it make a difference? Some questions to ponder.
Habhajan Singh is the corporate editor of The Malaysian Reserve.
- This article first appeared in The Malaysian Reserve weekly print edition