Malaysia, Indonesia, Thailand launch local currency settlement framework

PETALING JAYA: Bank Negara Malaysia (BNM), Bank Indonesia (BI) and Bank of Thailand (BoT) have launched local currency settlement frameworks to promote wider use of local currencies for trade and investment.

This is in accordance with two bilateral memorandums of understanding on local currency settlement framework that were signed between the three central banks, on Dec 23, 2016.

The frameworks consist of the rupiah-ringgit, rupiah-baht and an expansion of the existing ringgit-baht one to include direct investment to enrich the existing trade transactions. All three frameworks will be effective from Jan 2, 2018.

In a joint statement today, the central banks said the establishment of the three frameworks: rupiah-ringgit; rupiah-baht; and expanded baht-ringgit frameworks mark a key milestone in strengthening regional financial cooperation between the banks.

“Appointed banks are those, which are among the resilient and healthy banks in each country, have experience in facilitating trade between the two countries, have experience in business relationship with the bank in the counterparty country, and have broad customer base and branch offices in the home country,” they said.

BNM has appointed CIMB Bank, Hong Leong Bank, Maybank, Public Bank, RHB Bank, Bangkok Bank, Bank of Tokyo-Mitsubishi UFJ Malaysia and United Overseas Bank for the operationalisation of the frameworks between Indonesia and Thailand.

“In 2016, Malaysia shared a bilateral trade volume of US$13.8 billion (RM56.3 billion) with Indonesia and US$13 billion with Thailand. However, only 5.8% and 11.4% of our trade with Indonesia and Thailand were settled in local currencies. This is an enormous business opportunity for the financial sector, which has yet to be realised,” BNM governor Tan Sri Muhammad Ibrahim said in his opening remarks at the launch of the frameworks in Jakarta today.

In 2016 intra-regional trade contributed US$521 billion or 23.5% of total trade. Intra-Asean investments rose to a record level of US$24 billion in 2016 and accounted for 25% of total foreign direct investment flows into the region.