Malaysia's Central Bank Identifies Need For Highly Matured Foreign Exchange Market

KUALA LUMPUR, Dec 21 (Bernama) -- The financial sector blueprint in the next decade calls for the establishment of a highly matured Malaysian foreign exchange market which will set the stage for the internationalisation of the Malaysian ringgit. Bank Negara Malaysia (BNM), in the Financial Sector Blueprint 2011-2020 released today, said progressive liberalisation of foreign exchange administration together with commitments to support financial market developments would further enhance the country's regional and international linkages. With the preconditions in place, it paves the way for the full "internationalisation" of the ringgit, where access to the ringgit market by non-residents for purposes beyond settlement of trade and investment will be fully liberalised, it said. While such a move would further increase the efficiency in undertaking financial transactions in the ringgit market, it would also be accompanied by the risk of potentially destabilising speculative foreign exchange activities. Therefore, preconditions need to be met, including having deep and vibrant domestic foreign exchange and money markets, as well as, ensure sound risk management and corporate governance practices by financial market players. The central bank said the recommendations in the blueprint would focus on the money, foreign exchange and government securities markets. The new blueprint will promote an efficient and competitive money market with greater depth and liquidity by offering a wide range of liquid ringgit and multi-currency money market instruments, with participation by a wide variety of players. BNM also recommends deepening liquidity in government debt securities and sukuk markets by enhancing the benchmark yield curve, increasing product offerings and introducing government debt securities derivatives products. The blueprint also calls for broadening the investor base for government securities market, as well as, enhancing avenues for risk management and instruments to manage risk exposures. It would also place emphasis on the need to enhance access and improved liquidity in the foreign exchange market and supporting the use of regional currencies for trade settlement and direct investment activities. The central bank also recommends developing infrastructure and arrangements for efficient and cost effective foreign currency trading, payments and settlements onshore. -- BERNAMA