Facilitating Malaysia-China Bilateral Trade Malaysian Palm Oil Council Seminar Adnan Zaylani Bank Negara Malaysia 7 th Sept 2015 1 1
Malaysia s trade with China is significant Malaysia ranks first among China s trading partners in the ASEAN region, comprising of 21% of China s trade volume with ASEAN countries Malaysia s exports to China largely concentrated in E&E products and raw materials including Palm Oil Source: Bloomberg Source: MATRADE, Department of Statistics Malaysia 2 2
Potential increased utilization of resident trade settlement in RMB in upcoming years Trade settled in RMB currently represent 2% of our bilateral trade with China. There remains great potential for wider use of RMB as settlement currency for trade and investment. Source: BNM 3 3
Efforts by BNM to enhance infrastructure for RMB business 2009 BNM became the first central bank in ASEAN to establish a RMB swap line with PBoC amounting to RMB80 billion. In 2012, the swap size increased to RMB180 billion. BNM became the first Asian central bank to be awarded the Qualified Foreign Institutional Investor (QFII) license and among the first to be granted access to the China Interbank Bond Market (CIBM) 2010 2012 RMB/MYR was the first emerging market currency to be directly traded in the China Foreign Exchange Trade System (CFETS) MyClear included Renminbi Settlement Service in its Real-time Electronic Transfer of Funds and Settlement System (RENTAS) Bank of China (Malaysia) Berhad appointed as the Onshore Settlement Institution (OSI) for Renminbi in RENTAS BNM Regional Office in Beijing began its operations 2013 Cross-Border Collateral Arrangement (CBCA) was established with PBC to enable the use of home currency collateral in the form of securities or cash to obtain domestic liquidity from the host country Renminbi Liquidity Facility (RLF) was introduced to licensed onshore banks. 2014 An MOU was signed with PBoC on RMB Clearing Bank Arrangement 2015 Bank of China (KL) was appointed RMB clearing bank for Malaysia 4 4
Renminbi Liquidity Facility established to encourage RMB transactions in Malaysia Background " BNM signed a Bilateral Currency Swap Arrangement (CSA) with PBOC which was renewed in 2012 to strengthen financial cooperation and facilitate greater bilateral trade and investment ties. " The CSA is utilised to facilitate trade settlement and investment in China s financial markets. Renminbi Liquidity Facility (RLF) " To further promote the use of RMB for trade and investments, the RLF targets to enhance the liquidity of RMB in the domestic market. " Instruments available to licensed onshore banks: Buying and selling outright RMB/MYR on spot and forward FX market RMB deposit placement and RMB/MYR Swap RMB loan through repurchase agreement; and RMB deposit acceptance 5 5
RMB activities in Malaysia is supported by robust infrastructure, making Malaysia one of the top 10 renminbi payment centres Source: SWIFT, June 2014 report 6 6
The development of the RMB business activities in Malaysia 7 7
Internationalisation of Renminbi Liberalisation of RMB financial markets " PBoC widened access to China s interbank bond market to central banks, sovereign wealth funds and supranational institutions (July 2015). " CNY fixing rate mechanism adjusted to better reflect market-based pricing (August 2015). Potential for RMB to be Reserve Currency " China is actively seeking the renminbi into the Special Drawing Right (SDR) Basket " The review for Special Drawing Right (SDR) will be conducted by the IMF in October 2015, where the renminbi would be assessed whether it meets the criteria to be included in the SDR basket. Inclusion in Global Indices " Current efforts underway to include China A-shares in several global indices (i.e. MSCI Emerging Markets Index, FTSE Emerging Index). Greater regional and international engagements " One belt one road initiative to expand China s regional trade and investment " Establishment of Asian Infrastructure Investment Bank (AIIB), New Development Bank (BRICS Development Bank) 8 8
In Summary RMB internationalisation is developing rapidly, moving towards becoming one of the major currencies to be used for international trade and investment. BNM has supported developing and operationalizing RMB business. Malaysian firms should capitalize on the development, prepare and take a long term perspective in order to align to the changing financial landscape in the region. 9 9
Appendix 10
BNM RMB Liquidity Facility Facility RMB/MYR Spot and Forward Transaction RMB Deposit Placement and RMB/MYR Swap RMB Repurchase Agreement (Repo) RMB Deposit Acceptance Purpose Trade, foreign direct investment and short-term liquidity management Investment Eligible counterparties Available to all licensed onshore banks for approved purposes Tenor For trade and investment purposes: Up to 12 months (with documentation evidence) For short-term liquidity management purposes: Up to 1 week Amount Up to amount required for purposes approved by BNM Up to 6 months Interest rate - By reference to prevailing market rate, or SHIBOR where applicable Eligible collateral Haircuts on eligible collateral Operating window and cut-off times - - - - Ringgit denominated debt securities issued by Malaysian government, BNM and EMEAP-member governments Cut off time for RMB facility request: 12:00 pm (settlement date 1) 11 11 Non-ringgit denominated debt securities issued by Malaysian government and EMEAPmember governments in USD, GBP, EUR, JPY, and the respective home currencies As listed in Appendix II of the Standing Facility guideline An additional 2% haircut for non-myr or non-rmb denominated securities - -