Potential to raise funds in Chinese currency – Zeti

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KUALA LUMPUR: There is more renminbi (yuan) financing in the pipeline after the two issuances of offshore yuan sukuk out of Malaysia and a yuan bond issuance by Malaysian corporations, according to Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz.

The reason, she said, for this was that there was greater potential to raise funds in the currency (yuan), especially investments in China and bilateral cross-border activities between Malaysia and China.

Asked whether she expected any fund raising in yuan this year, Zeti said this would depend on approvals by the central bank and the Securities Commission, adding that corporations intending to raise funds in the currency needed to look into market development in terms of timing.

She said this on the sidelines of a seminar entitled “Renminbi trade settlement and investment in Malaysia: Future prospects.”

On whether there was a need to increase the current amount of 180 billion yuan of the currency swap arrangement agreement between the central bank and People’s Bank of China, she said the bank would review it moving forward.

On the usage of yuan in trade settlement, she said Malaysian exporters and importers needed to have greater awareness of the facilities available to conduct their trade and investment transactions in the currency and was currently seeing increased growth in this area.

Zeti also reiterated that the bank had the ability to monitor all funds in and out of the country due to its strong surveillance capability.

Meanwhile, in her keynote address, she said Malaysia was well positioned to realise this growth potential in yuan bond and sukuk, given its market size and supporting infrastructure.

Malaysia not only had the largest debt securities market in South-East Asia, but was also a leading international centre for sukuk issuance, she said, noting that both markets were evolving as a multi-currency bond and sukuk market.

For the yuan to be considered an option for both exporters and importers to settle their trade obligations in addition to the major currencies, Zeti said there needed to be an efficient and cost-competitive source of financing in yuan and a diversified investment avenue.

In particular, she added, it was recognised that discernible progress in three areas were needed to be put in place at an early stage to support the use of yuan. This include to improve access to yuan liquidity, to have the supporting infrastructure and framework and to provide information on the use of the yuan for trade and productive investment transactions.

“The use of renminbi for trade settlement provides a natural hedge for businesses with yuan obligations. It also generates cost savings and minimises exchange rate risks, in particular, it reduces the exposure to exchange rate fluctuations of a third currency.

“While the dollar will continue to remain an important currency for settlement of trade obligations, the availability of yuan would provide companies an additional currency for such trade settlement,” she noted.

The benefits to be gained could be significant given the large and increasing trade base with China which stood at RM167bil in 2011, Zeti said. A nationwide awareness programme by the banking institutions and the business chambers was also creating greater awareness on yuan for trade settlement and investment, she said.

The central bank had also participated in the Chinese interbank bond market, Zeti said, adding that last year alone, the size of yuan trade settlement in Malaysia expanded by four times from the level a year ago, reflecting a growing interest in yuan as a settlement currency. – The Star