Bank Negara encourages renminbi use in China trade

KUALA LUMPUR: Bank Negara encourages but does not make it mandatory the usage of the renminbi in bilateral trade between Malaysia and China, a senior official said.

As the central bank, our role is to facilitate a conducive environment for businesses to choose whichever currency that is cost effective,” said Bank Negara director of investment operations and financial market department Adnan Zaylani Mohd Zahid.

Last year, he said, 2.2 per cent of China-Malaysia bilateral trade were invoiced and settled in renminbi.

“In the first half of this year, we’ve registered 1.5 per cent,” Zaylani told reporters at the Palm Oil Industry Leadership Forum held here yesterday.

“Following the appointment of Bank of China in Kuala Lumpur as the Renminbi Clearing House and better publicity of renminbi usage, this year, we should be able to see trade value settled in renminbi surpass 2.2 per cent of total trade,” he added.

Given that less than 3 per cent of Malaysian companies transact in renminbi, compared with a global average of 22 per cent, Zaylani noted there is real scope for growth, especially when China is Malaysia’s biggest trading partner.

Zaylani explained that the appointment of a Renminbi Clearing House in Kuala Lumpur is backed by currency swap between Bank Negara and its counterpart in China, People’s Bank of China.

The original currency swap arrangement between China and Malaysia was established in 2009 with just 80 billion renminbi. It was enlarged to 180 billion renminbi in 2012 and renewed for three years to 2015. Recently, both governments extended it for a further three years to 2018.

The renminbi is now the first foreign currency to be included in the Malaysian clearing system via Bank Negara's subsidiary Malaysian Electronic Clearing Corp Sdn Bhd (MyClear). Bank of China in Kuala Lumpur is working with MyClear in settling renminbi via the Real-time Electronic Transfer of Funds and Securities System (Rentas).

The Palm Oil Industry Leadership Forum is being organised by the Malaysian Palm Oil Council (MPOC) and supported by the Bank of China (Malaysia) Bhd, Malayan Banking Bhd and Bursa Malaysia.

In order to maximise value in the supply chain, palm oil exporters are encouraged use more of Bank Negara's renminbi swap lines established with the People’s Bank of China given the fact that China is Malaysia's biggest trading partner.

Bank of China (Malaysia) corporate banking department general manager Phelicia Ding, who spoke at the forum, explained a palm oiĺ exporter can benefit by seeking funding in the renminbi and subsequently, swap it into Ringgit, which can then be used to pre-finance commodity contracts.

Palm oil buyers in China can pay for the goods delivered in renminbi, which can be used to unwind its renminbi-funding position. “Palm oil exporters may be able to negotiate with buyers in China for better terms, such as longer contracts and possibly premiums,” Ding said.

As long as the US dollar remains the trade currency of choice, many transactions will continue to require a three way conversion, from the ringgit to the US dollar to renminbi with a loss of basis points at each conversion.

“We can avoid double conversion. There’s savings to be reaped from direct conversion between the ringgit and renminbi. Businesses in Malaysia can open bank accounts in renminbi and trade directly,” she said.

Separately, MPOC chairman Datuk Lee Yeow Chor concurred that with Bank of China in Kuala Lumpur chosen as the renminbi clearing house, palm oil exporters using bank facilities in Malaysia can have direct access to onshore renminbi markets in China without having to route their transactions through a mainland lender.

"This renminbi clearing house in Kuala Lumpur will certainly help in making trade flow smoother with China as we need not convert currencies that many times. About 20 per cent of Malaysia's palm oil shipment goes to China. There will be some cost savings," Lee said.