Malaysia Does Not Practise Unfair Currency Practices
Be the first to review
Bank Negara Malaysia (BNM) said Malaysia supports free and fair trade and does not practise unfair currency practices. This statement is made after Malaysia has been placed on the currency manipulator watch list by the US Treasury under its foreign exchange policy report.
The central bank said Malaysia adopts a floating exchange rate regime. It said the ringgit exchange rate is market-determined and is not relied upon for exports competitiveness.
“As acknowledged by the report, BNM’s intervention over the last few years has been in both directions of the foreign exchange market."
“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 said.
BNM said 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 said 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.
The central bank explained that manufactured good surplus, on the other hand, 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.
“There are no consequences for the Malaysian economy from Malaysia’s 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,” it said.
In the latest report, besides Malaysia, the Monitoring List comprises China, Japan, Korea, Germany, Italy, Ireland, Singapore, and Vietnam.
Once on the Monitoring List, an economy will remain there for at least two consecutive Reports to help ensure that any improvement in performance versus the criteria is durable and is not due to temporary factors.
The US Treasury said Malaysia has maintained a significant bilateral goods trade surplus with the United States since 2015, registering US$27 billion last year.
However, it said Malaysia’s current account surplus has narrowed substantially over the past decade on higher consumption and investment, falling to 2.1% of gross domestic product (GDP) in 2018.
It added Bank Negara Malaysia (BNM) has over the last few years intervened in both directions in foreign exchange markets.
“Treasury estimates that in 2018, the central bank made net sales of foreign exchange of 3.1% of GDP to resist depreciation of the ringgit."
“Malaysia’s external rebalancing in recent years is welcome, and the authorities should pursue appropriate policies to support a continuation of this trend, including by encouraging high-quality and transparent investment and ensuring sufficient social spending, which can help minimize precautionary saving,” it said.