to these perceptions as misleading, with little reflection of reality. what is worrying is that, such perceptions and sentiments, if left unaddressed, would end up shaping reality. for one, a look at the correlation between oil prices and ringgit tells a completely different story as the correlation has been low in recent years. this is not surprising given that the relationship between oil and ringgit has been declining as malaysia has come a long way in diversifying its economy. the country is no longer reliant on oil and gas for economic growth. our growth is now driven largely by domestic consumption. on the fiscal side, efforts were taken to diversify revenues with the introduction of the goods and services tax and rationalisation of subsidies ; similarly, for the offshore ringgit pricing, the reality is that, it is driven by speculation and non transparent price discovery. ringgit is not an internationalised currency and therefore any offshore trading and pricing should have no fundamental basis. in fact, it is illegal. the sizeable speculative activities and herd - behaviours that take place in the offshore market have considerable influence over offshore ringgit pricing. consequently, the offshore market significantly misprices the ringgit. on the other hand, onshore pricing is based on real demand and supply that reflects real economic activities. despite what market had perceived, the domestic market volume has increased. it continues to record robust activities in the financial market, reaching daily volume as high as usd16. 1 billion compared to usd14. 1 billion recorded in 2016, the onshore market volume on forwards and swaps alone has surpassed the observed offshore forward market volume which now records an average of usd1. 0 billion a day. in addition, there is a narrowing of bid - offer spreads that would indicate an improvement in liquidity. anecdotal evidence suggests that market participants, including corporates, continue to access the market to meet their business needs ; risk exposure from high non - resident participation in the onshore market has effectively reduced. risks from high non - residents holding have significantly subsided as footloose short term positions have exited the market in the early part of the year. the non - resident investors that remain in the domestic market comprise mostly of long term investors. they are less affected by short - term market dynamics. their investments tend to remain stable and at times act counter cyclically to short - term investors, providing stability to the overall bond market ; 4 / 7 bis central bankers'speeches on reserves, our level is

sufficient to meet our needs. a point often overlooked, is that the central bank ’ s international reserves is not the only source to meet external liabilities. the availability of external assets and also currency denomination of the external liabilities are alternative sources of funding. in fact, bnm holds only 25 percent of the system ’ s foreign currency reserves. the rest is with the financial system itself. furthermore, while the reserves are expected to intermediate capital flows in the short run, we must not forget that the floating exchange rate framework is an important adjustment mechanism that can buffer volatile capital flows. lastly, malaysia ’ s external debt cannot be judged based on the aggregate level alone. onethird is denominated in ringgit and is not subjected to valuation changes from exchange rate movements, limiting the risk of currency mismatches. the remainder are subject to prudential management and hedging requirements. what is more important is that more than half of the total external debt is skewed towards medium - to long - term debt, while shortterm debt poses limited claims on reserves. taking all these factors into consideration, malaysia ’ s external debt remains manageable. as we can see, the reality is far different from the perception. it is important that conclusions are made based on facts rather than perceptions and sentiments. without us delving into the details and without the availability of critical information, the probability is high that our perception and sentiment would be inaccurate. because of this ‘ reality gap ’, the central bank needs to show its presence in the market when it is needed. part iii – ringgit exchange rate and interventions for this reason, interventions by central banks on the odd occasion becomes necessary. interventions can take different forms. many of you may focus on market or operational interventions. indeed, this is important to ensure the market has sufficient liquidity in stressed conditions. but it must be recognised that these interventions are not to manage the level of exchange rate, as the ringgit remains a floating currency. demand and supply forces must be allowed to determine the level of the exchange rate. but at the same time, we cannot be oblivious to the aberrations in demand and supply, originating from large speculative positions. large swings in the exchange rate are detrimental to our country. it is highly risky for an open economy like malaysia that relies on international trade activities and exchange rate as a price mechanism. through experience and practice, we have generally accepted that in a floating rate regime, the market should be left to