One important step to achieve this is to extend trading hours by implementing an Asian order offset (AOO) system, UCSI University Malaysia assistant professor of finance Liew Chee Yoong suggested.

“Investors are likely to be attracted to use AOO primarily due to the convenience it offers, allowing for trading at times best suited to an individual’s schedule, regardless of different time zones,” he told FMT.

Such convenience is crucial in the global market, where trading happens 24/7, said Liew, who is also a research fellow at the Center for Market Education.

He said the government should establish efficient settlement systems for ringgit-US dollar transactions between banks to expedite the process and reduce transaction risks.

“It could leverage digital technologies for operations such as online account openings, electronic documentation and automated trading systems,” he said, commenting on Anwar’s de-dollarisation initiative.

If Malaysia starts trading primarily in the ringgit, Liew said, the value of the ringgit could experience increased fluctuations of “roughly between 5% and 10%”.

“This is due to changes in the competitiveness of the country’s imports and exports, which influences the trade balance and monetary policy responses from Bank Negara Malaysia,” he said.

Anwar had said the country is looking to increase trading in the local currency as part of a strategy to shore up the weakening ringgit, and reduce reliance on the greenback.

“To entirely stop the reliance on the US dollar will be difficult, but Malaysia will be more active and aggressive in the use of ringgit (in trading),” he told parliament last month.

The strategy will involve increased use of the ringgit with its largest trading partner, China, as well as other Asean nations.

Moves to de-dollarise predates Anwar’s administration. In 2017, four Asean countries – Indonesia, Malaysia, Thailand and the Philippines – signed an agreement to use local currencies in bilateral trade transactions.

Currently, the US dollar is the world’s dominant reserve currency, meaning that countries across the world hold large amounts of US dollars in their foreign exchange reserves.

In 2022, about 80% of Malaysia’s annual trade, or RM2.8 trillion, was conducted in US dollars. However, trade with the US, the country’s third-largest trading partner, amounted to only RM267.5 billion, making up 9.4% of total trade.

De-dollarisation benefits businesses

There are practical reasons for reducing dependence on the dollar rather than due to a grand geopolitical chess game involving the US’ rivals, China and Russia, and their supporters.

The two superpowers, and indeed a host of other countries, claim America has abused its privilege of holding the world’s premier reserve currency by weaponising it via sanctions and freezing of other nations’ sovereign assets, as in the case of Russia in the wake of its conflict with Ukraine early last year.

Bank Muamalat Malaysia chief economist Afzanizam Rashid said trading in local currencies could lead to reduced business costs.

“If we can do this, businesses may not have to spend on hedging their currency exposure against the US dollar,” he told FMT.

He also said de-dollarisation could lead to improved predictability in the business cycle, with minimal impacts from changes in US monetary policy.

Global currency markets are often affected when the US Federal Reserve adjusts interest rates. Rising interest rates typically result in increased demand for the dollar, strengthening it while depreciating other currencies, as happened in the past year-and-a-half as the US Fed raised interest rates to as high as 5.5%.

The Federation of Malaysian Manufacturers (FMM) also expressed support for transitioning away from the dollar in international trade, as a stronger ringgit would lead to cost reductions for manufacturers who are net importers.

“It would also be beneficial to manufacturers with high foreign debt as a stronger ringgit will ease businesses’ repayment of ongoing debt obligations, especially those with high foreign currency-denominated borrowings,” said FMM president Soh Thian Lai.