muhammad bin ibrahim : central bank collaboration in asia – facilitating the use of local currencies for settlement of trade and investments remarks by mr muhammad bin ibrahim, governor of the central bank of malaysia ( bank negara malaysia ), at the signing ceremony of the memoranda of understanding between bank indonesia and bank negara malaysia and bank indonesia and the bank of thailand, bangkok, 23 december 2016. * * * my delegation and i are pleased to join governor veerathai and governor agus here in bangkok today to mark the collaboration between our central banks to facilitate the use of local currencies for settlements of trade and investments. our economies 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. in particular, 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. 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 malaysia and the bank of thailand first operationalized this arrangement between our central banks in march 2016, 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 signing of this mou between bank indonesia and bank negara malaysia represents another important milestone in the move to strengthen the relationship between malaysia and indonesia. following the conclusion of the asean banking integration framework, we are confident financial institutions in both countries will be able to collaborate towards realizing the objective of facilitating greater cross - border trade and investments. both thailand and indonesia share important links with malaysia, forged through a long history of trade and investment activities, and close cooperation between our central banks. this occasion reflects how far we have come in this process. 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,

has been the existence or the absence of the independence of the central bank. many have found fault with exter for making the secretary to the ministry of finance a member of the monetary board. they have argued that this official member with his own self interest in funding the government expenditure programs would use the opportunity to dictate terms to the monetary board, thereby permitting the fiscal policy to override monetary policy. it has been equated by some critics to the case of permitting a child to put his hand into the cookie jar as many times as he wishes. while these criticisms may have some validity, exter ’ s wisdom has been to create an environment for both the government and the central bank to have a peaceful and amicable cohabitation. exter has argued in his report that “... there are, however, many important problems of monetary policy, especially those relating to fiscal policy, on which a central bank should work in close harmony with the government ”. accordingly, a degree of independence has been afforded to the central bank unlike other governmental bodies. this independence extends to the budget of the central bank, job security of the key central bank officials, and power to make monetary policy without consulting the government. the wisdom of exter was that the central bank should as far as possible work in consultation with the government, rather than in isolation. he believed that the true independence of the central bank could be preserved only through that consultative method. in the words of exter, “ the ideal is … one in which there will be continuous and constructive co - operation between the monetary board and the government. the principal instrument for achieving this co - operation should be the permanent secretary to the ministry of finance whose membership on the board will ensure at all times that his minister ’ s views will be made known to the other members of the board ”. however, exter did not expect this arrangement to be effective at all times. hence, he made the proviso that “ it would depend on the men occupying the key positions ” and not on any legal formula. he argued quite correctly that such complex and delicate relationships cannot be established full - blown by a piece of legislation. it must be the result of years of experience and the slow growth of political conventions. the writer has been questioned on this point on many occasions at numerous public fora. the position taken by him agrees fully with that of exter. this position requires the critics to compare central bank ’ s independence with the relationship within