Malaysia’s Bank Negara (central bank) has announced new measures to further liberalize the growing South East Asian economy. The new measures mean that banks can now trade local currencies against each other, thus creating liquidity and new trade opportunities.
Malaysia is one of Asia’s fastest growing economies with a strong resource based economy. The local currency – Malaysian ringgit has capital controls and is pegged against the dollar. Th central bank dictates the range the currency trades in.
The ringgit is traded in the NDF market however since the 1998 capital controls by Dr Mahatir turnover has been significantly low as the currency is pegged against the dollar. In addition, the exchange controls in Malaysia prohibited domestic banks to undertake forward foreign exchange transactions with offshore counter-parties thus making it difficult for exports/ importers to hedge their exchange risk.
Asia’s NDF turnover accounts for the majority of global NDF turnover. In particular, NDFs in the Korean won, the New Taiwan dollar, the Chinese renminbi, the Indian rupee, the
Indonesian rupiah and the Philippine peso amount to more than 60 per cent of the emerging market NDF turnover globally.
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As per the BIS 2004 survey the Malaysian ringgit had a daily turnover of a mere $350 million dollars (second lowest amongst major Asian currencies). The new moves will create a new Asian interbank trading environment and bring opportunities for international investment managers to trade in Malaysian instruments and hedge their currency exposure.
The Ringgit is currently trading at 3.0520 against the greenback.
Malaysian retail investors have ben attracted to the growing online FX trading industry. The streets of Kuala Lumpar were filled with new schools teaching the art of trading, however the central bank put a stop to this type of speculative trading after an influx of complaints from traders losing out to fraudulent IB’s and introduces and halted money transfers to international brokers.
Forexmagnates team will be covering the Singapore FX market in the next quarterly report.