Global Courant 2023-05-01 09:00:00
KUALA LUMPUR – Malaysia’s proposal to reduce reliance on the US dollar for trade is unlikely to catch on with companies in the country, analysts say, as key industries see the greenback as less volatile compared to alternative currencies.
The proposal, put forward by Prime Minister Anwar Ibrahim after his official visit to China in late March, echoes similar calls from a growing number of countries, including China, Russia and India.
About 80 percent of Malaysia’s annual trade, totaling RM2.8 trillion (S$840 billion) by 2022, is denominated in US dollars. But Malaysia’s trade with the United States, its third-largest trading partner, is only RM267.5 billion, representing 9.4 percent of total trade.
China remained Malaysia’s largest trading partner in 2022, accounting for 17.1 percent of Malaysia’s total trade. Singapore ranks second, with a trade volume of RM368.2 billion in 2022, according to data from the Malaysian Ministry of Investment, Trade and Industry.
India, a major importer of Malaysian palm oil, traded $19.4 billion (S$25.9 billion) with Malaysia in 2022.
Since April, Malaysia has been able to conduct international trade with India using the rupee, while the central bank, Bank Negara, is proposing a similar mechanism for payments to China in renminbi.
If companies are willing to trade entirely in foreign currencies such as China’s renminbi and Indian rupee, Malaysia’s share of US dollar billing could fall by as much as a fifth, Maybank chief forex strategist Saktiandi Supaat said.
“Hypothetically, it would be possible for Malaysia to see a reduction in US dollar-dominated trade of up to 20 percent, if the billing and clearing of transactions moved to local or non-US dollars,” he told The Straits Times .
However, companies in key export industries such as palm oil, petroleum and power and electronics (E&E) are hesitant to support the de-dollarization push.
Sime Darby Plantation, the largest oil palm plantation company in Malaysia, said its buyers prefer to buy palm oil products in US dollars as commodities are still largely traded in dollars.
“The company also has no bilateral agreements with other countries to trade palm oil in different currencies,” the company told ST.
Companies in the E&E sector are also unlikely to move away from the US dollar, which continues to dominate the industry, said Wong Siew Hai, president of the Malaysia Semiconductor Industry Association.
“The adage still applies: when the US sneezes, the world catches a cold. It will take time for the non-US dollar financial systems to catch up and be used on a widespread basis similar to the US dollar,” he added.
Mr. Tahir Bukhary, an investor in the oil and gas industry, said companies prefer to trade crude in dollars until the Organization of Petroleum Exporting Countries and its allies decide to sell crude in alternative currencies.
