Malaysia launches Renminbi Clearing Bank in KL

This is written by Ooi Tee Ching and Minderjeet Kaur.

PUTRAJAYA: Malaysia is set to promote direct trade settlement for cross border transactions in Asean with Bank Negara Malaysia appointing Bank of China in Kuala Lumpur as an offshore renminbi (RMB) clearing house, said Prime Minister Datuk Seri Najib Razak.

The move, which makes cross border transactions with China more cost efficient, is set to boost the internationalisation of the RMB. Currently, the world's most popular currency is the US dollar. 

The RMB overtook the euro in 2013 as the world’s second-most used in trade finance and was the fifth most-popular for global payments, according to the Society for Worldwide Interbank Financial Telecommunications (SWIFT).

China's central bank People's Bank of China noted Malaysia is the second ASEAN nation to host a RMB clearing house, after Singapore. Commercial entity Bank of China has been appointed the clearing house for RMB trades in Malaysia. 

Apart from Singapore, other financial hubs hosting RMB Clearing Banks are Frankfurt, Paris, Luxembourg, London, Seoul and Sydney. 

Malaysia, which is China's biggest trading partner in Asean, expects the RMB Clearing Bank to facilitate more trade in RMB and boost Kuala Lumpur's status as Asean's financial hub. 

Najib said Bank Negara Malaysia had appointed Bank of China in Kuala Lumpur as the RMB clearing house here. 

The RMB is now the first foreign currency to be included in the Malaysian clearing system.

In 'clearing' RMB transactions, the Bank of China in Kuala Lumpur will be the intermediary between the buyer and seller to smooth banking and trading transactions. 

By having a clearing house for RMB in Kuala Lumpur, banks in Malaysia will have direct access to onshore RMB markets in China without having to route their transactions through a mainland lender.

Currently, Bank of China in Kuala Lumpur already has almost 70 per cent of RMB clearing because it is linked with 26 financial institutions here. It has also attracted financial institutions from Vietnam, Singapore and Brunei to set up renmibi clearing accounts.

This is further supported by Bank of China being an official member clearing bank of Malaysia Derivatives Exchange (MDEX).

Najib said China is Malaysia's largest trade partner, while Malaysia is China's biggest trade partner within Asean.

The bilateral trade had exceeded US$100 billion last year, he said. "We have set a goal of reaching US$160 billion in bilateral trade by 2017," Najib said at the launch of Renmibi Clearing Bank in Malaysia here yesterday.

Also present were China ambassador to Malaysia Dr Huang Hui Kang, Prime Minister Special Envoy to China Tan Sri Ong Ka Ting, Bank of China Ltd president Chen Si Qing and Bank of China (Malaysia) Bhd chief executive officer Wang Hong Wei. Bank Negara Malaysia was represented by deputy governor Datuk Nor Shamsiah Mohd Yunus.

Malaysian ministers present at the launch included Minister of International Trade and Industry Datuk Seri Mustapa Mohamad and Transport Minister Datuk Seri Liow Tiong Lai.

Najib said the RMB foreign exchange now stands at RMB3.5 billion a day. "If it enters the International Monetary Fund’s special drawing rights scheme this year, it will officially become one of the world's major reserve currencies," he added. 

In 2014, Malaysia and China celebrated 40 years of diplomatic ties. This year, Najib said Chinese visitors, in group tours, to Malaysia would be exempted from visa fees.

"We are also looking at setting up new direct fights such as from Malacca to Guangdong. We have discussed conducting the first combined military exercise between our two countries as well as building railways, seaports and industrial parks together," he said.

Already, both governments have set up the China-Malaysia Qinzhou Industrial Park and the Malaysia-China Kuantan Industrial Park.  

"Recently, I was having dinner with President Xi Jin Ping and he told me the relationship between Malaysia and China has never been better, now being the highest level in history," he said.