Muhammad bin Ibrahim: Local currency trade settlement between
Indonesia, Malaysia and Thailand
Opening remarks by Mr Muhammad bin Ibrahim, Governor of the Central Bank of Malaysia (Bank
Negara Malaysia), at the Launching of Local Currency Trade Settlement between Bank Indonesia
and Bank Negara Malaysia and Bank Indonesia and the Bank of Thailand, Jakarta, 11 December
2017.
* * *
I am pleased to join Governor Agus and Governor Veerathai at this momentous occasion to mark
the launching of the Bank Indonesia - Bank Negara Malaysia and Bank Indonesia - Bank of
Thailand Local Currency Trade Settlement Frameworks (Framework) and expansion of the Bank
Negara Malaysia - Bank of Thailand Framework, here in Jakarta.
This is an important point of our collaboration as we operationalise the Memorandum of
Understanding signed between Bank Negara Malaysia with Bank of Thailand in 2015 and Bank
Indonesia in 2016 - a testament of mutual cooperation and trust to further promote cross-border
settlement for bilateral trade and direct investments.
Intra-ASEAN partnership is critical for regional integration in support of our economies and
financial systems. Having celebrated ASEAN's golden jubilee in August 2017, we have certainly
come a long way as a collective to achieve greater regional closeness and attainment of mutual
benefits.
Today, we have reached a new pinnacle of regional initiatives where cross-border settlements
using local currencies to settle trade and direct investments had taken shape. We expect this to
be strengthened further, supported by the strong growth of intra-ASEAN trade. The data look very
promising. In 2016 intra-regional trade contributed USD521 billion or 23.5% of total trade.
IntraASEAN investments rose to a record level of USD24 billion in 2016 and accounted for 25% of
total FDI flows into the region.
Within the region, Indonesia and Thailand are important partners to Malaysia both in trade and
direct investments where there is continuous growth propelled by inter-company linkages and
cross-border investments. In 2016, Malaysia shared a bilateral trade volume of billion
USD13.8
with Indonesia and USD13 billion with Thailand. However, only 5.8% and 11.4% of our trade with
Indonesia and Thailand, respectively were settled in local currencies. This is an enormous
business opportunity for the financial sector, which has yet to be realised.
Similarly, on the investment front, Malaysia has invested billion and billion of direct
USD13 USD2
investments into Indonesia and Thailand, as at second quarter of 2017. Indeed, the completion
and enhancement of the Frameworks is an important step towards the use of local currencies to
support cross-border settlements for trade and direct investments among the three It
countries.
is an opportunity to mitigate the impact of volatilities in major trading currencies on regional trade
and investment activities.
We can recall the Global Financial Crisis, where the tightening of global US dollar liquidity was a
contributor to the 19% contraction of total trade and 11.5% contraction of total inward FDI into the
region. Moreover, an enabling environment for the effective use of local currencies will bring
about greater cost efficiency and stability for businesses and increase demand for local currency
financial products. That will, in turn, be the impetus to strengthen regional financial markets'
development.
I am pleased that the event today is made possible by all three central banks, mutually agreeing
to grant regulatory flexibilities to the appointed banks under these Frameworks, enabling them to
provide a wider range of financial services under their respective jurisdictions.
Taking this opportunity, I wish to introduce the appointed banks in Malaysia for these
Frameworks, namely, Maybank Berhad, CIMB Berhad, RHB Berhad, Public Bank Berhad, Hong
Leong Bank Berhad, Bangkok Bank Berhad, United Overseas Bank (UOB) Berhad and Bank of
Tokyo-Mitsubishi (BTMU) Berhad.
The implementation of these Frameworks will complement our existing close partnership and
cooperation as neighbors, with common objectives and shared aspirations. On this note, I look
forward to witness the growth in the use Indonesian rupiah, Thai baht and Malaysian ringgit for
cross-border settlement of trade between Indonesia and Malaysia, and Thailand and Malaysia,
respectively.