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NEWS UPDATES 13 June 2009

Malaysia, China central banks plan currency swap

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Exporters and importers in Malaysia and China will soon have the option of settling their trade deals in ringgit and yuan when a currency swap between the two countries' central banks goes into effect, reported Reuters.

Malaysian central bank governor Zeti Akhtar Aziz told reporters that the swap, signed in February and worth 80 billion yuan/40 billion ringgit, would go into operation 'in the near term'.

The swap was arranged explicitly to boost two-way trade and investment, not to provide liquidity, which Zeti said was ample in the Malaysian banking system.
The People's Bank of China has arranged six such swaps, totalling 650 billion yuan ($95.12 billion), since December.

Sceptics see little reason why traders should abandon the convenience of the dollar, the main trade settlement currency; an agreement between Brazil and Argentina to settle bilateral trade in their respective currencies has had scant take-up.

Zeti said it was too early to say what the response would be in Malaysia, but the scheme would provide additional flexibility for companies whose margins are under pressure.

“There will be those who see the benefit of reduced transaction costs and reduced exposure to currency volatility,” she said on the sidelines of a banking conference.

Turning to the economy, Zeti said fiscal stimulus measures introduced in the first quarter, coupled with steps to increase access to financing, would feed through to the economy in the second half of 2009, particularly in the final quarter.

“Our current assesment is that growth will turn positive in the fourth quarter, year on year,” she said.

Asked whether interest rates had scope to fall, Zeti said the central bank was focusing on making it easier for companies to borrow through credit enhancement schemes and corporate debt restructuring, rather than on the cost of borrowing.

“All this is more important than the cost,” she said.


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