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BNM unfazed by Malaysia inclusion in US monitoring list, says no unfair currency practices

29 May 2019 / 16:53 H.

PETALING JAYA: Bank Negara Malaysia (BNM) said there are no consequences for the Malaysian economy from the country’s inclusion the US Treasury’s monitoring list of potential currency manipulator published today.

The central bank stated that Malaysia supports free and fair trade, and does not practise unfair currency practices.

“Malaysia adopts a floating exchange rate regime. The ringgit exchange rate is market-determined and is not relied upon for exports competitiveness,” said BNM in a press release.

However, the US treasury department reported that BNM has intervened in both directions in foreign exchange markets in the last few year.

BNM responded that any intervention is limited to ensuring an orderly market and avoiding excessive volatility of the exchange rate that may affect macroeconomic stability.

“The fact that the ringgit has over the years faced multiple episodes of significant appreciation and depreciation points to the flexibility of the exchange rate,“ it added.

The central bank explained that as a small and highly open economy, Malaysia’s current account of the balance of payments is affected by both internal and external developments, including cyclical and structural factors.

It stressed that about half of Malaysia’s trade surplus is driven by commodity exports, which is largely influenced by global demand and supply, as opposed to the exchange rate.

“On the other hand, manufactured surplus is partly driven by the long-standing presence of large export-oriented multinational corporations in Malaysia, including from the US. The current account surplus is thus a reflection of the diversified nature of the Malaysian economy.”

BNM reiterated that there are no consequences for the Malaysian economy from its inclusion in the monitoring list.

“The Malaysian economy remains resilient, underpinned by strong economic fundamentals, including the flexibility accorded by a floating exchange rate and strong external balance.”

Malaysia’s inclusion in the monitoring list comes after US Treasury Secretary Steven Mnuchin lowered the threshold for qualification. This however comes with no immediate penalties.

Under the new threshold, countries with a current-account surplus equivalent to 2% of gross domestic product (GDP) are now eligible for the list, down from 3%.

While the other two criteria are persistent intervention in markets for a nation’s currency, and a trade surplus with the US of at least $20 billion.

Countries that meet two of the three criteria are placed on the watch list.

Malaysia met two of the three criteria, with a bilateral trade surplus of US$27 billion with the US and material current account surplus equivalent to 2.1% of GDP.

It is among the nine countries in the monitoring list, alongside China, Germany, Italy, Ireland, Japan, Republic of Korea, Singapore and Vietnam.

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