KUALA LUMPUR: BANK Negara Malaysia, Bank Indonesia and Bank of Thailand have inked memorandums of understanding (MoUs) on a framework of cooperation to promote the settlement of bilateral trade and direct investment in their local currencies.
The signing, which took place in Bangkok yesterday, signifies a key milestone in regional central banking co-operation.
Bank Negara governor Datuk Muhammad Ibrahim said local currencies will help the three countries face common challenges in managing the risks from heightened volatility in the global financial markets.
“We can expect continued episodes of volatility to occur in the periods ahead, driven by a combination of policy uncertainties, negative sentiment and speculative activity.
“The arrangements signed today are part of our continuous efforts to provide the institutional and policy framework to promote orderly financial market conditions and support the efficient management of financial risks.
“These arrangements will enable exporters and importers in our countries to better manage foreign exchange risks by using local currencies to settle trade and investment activities,” he said in his remarks during the signing ceremony in Bangkok.
“In addition to improving cost-efficiencies for businesses, the increased demand for local currency financial products will also contribute towards deepening the region’s financial markets. This is important to further strengthen conditions for regional financial stability.
“When Bank Negara and Bank of Thailand first operationalised this arrangement between our central banks in March this year, we saw the potential and benefits for local currencies to play a more important role in enhancing regional trade linkages. The expansion of the arrangement today to include our close trade partner, Indonesia, underscores this potential.
“The cooperation arrangements between our central banks have now expanded to include clearly defined protocols and operational frameworks in a broad range of areas, including financial market development, supervision, surveillance, payment arrangements and crisis management,” he added.
The enabling environment is said to benefit businesses by reducing transaction costs and enhancing efficiency of trade and investment settlements and amid the current volatile global financial market conditions, this will offer businesses more options in choosing currencies for trade settlement.
“The framework will pave the way for wider usage of local currencies in the Asean Economic Community and spur further development of the regional foreign exchange and money markets, in support of wider economic and financial integration,” said Bank Negara in a press release issued yesterday.
The bilateral MoUs were signed by Bank Indonesia governor Agus D.W. Martowardojo, Bank Negara Malaysia governor Datuk Muhammad Ibrahim and Bank of Thailand governor Veerathai Santiprabhob.