BNM foreign exchange policy deputy director Zaidi Mahyuddin said reducing or dispensing with the use of the greenback will cut costs for businesses.
“Changing local currencies into US dollars and back can lead to losses and make businesses vulnerable to sudden changes in forex rates,” he said at a forum on local currency use hosted by the Indonesian consulate-general in Penang recently.
There is already a long-standing protocol for Malaysian businesses to use the rupiah or baht for trade settlements with their Indonesian and Thai counterparts.
Zaidi said BNM is engaging with businesses to encourage them to widen the use of local currencies in trade settlements.
He said that as a first step the central bank, through its financial market committee, is already talking to local financial institutions to get them to push for more local currency settlements.
“We are also working with our central bank partners (in Indonesia and Thailand) to enhance the local currency settlement framework,” he added.
The local currency settlement framework agreement, signed a decade ago, covers retail banking through QR and business invoice payments in ringgit, baht and rupiah.
According to the 2023 BNM annual report, Malaysia’s trade with China and Asean countries rose to 17.1% and 27.3%, respectively, relative to total trade.
However, a significant portion of this – 74.5% of deals with China and 84% with Asean – was done in US dollars. In comparison, only 13.1% of intra-Asean trade was settled in regional currencies, the report showed.
BNM has encouraged businesses to use local currencies instead of US dollars for trade since 2001 through various programmes, past reports show.
Currently, seven local banks are permitted to handle rupiah-denominated transactions, while eight Indonesian banks can deal in ringgit. Zaidi said this allowed locals to open accounts in either currency and banks to offer financing in both.
“This helps to facilitate the settlement of trade in goods and services and direct investment in local currency,” he added.
Rupiah-ringgit transactions neared RM1bil last year
Augustina Dharmayanti, head of financial market infrastructure development at Bank Indonesia, the republic’s central bank, said transactions denominated in ringgit and rupiah have grown significantly over the years.
In 2023, the volume of transactions between the two countries under the local currency framework amounted to US$195.5 million (RM926.4 million), up from US$90.2 million (RM427.4 million) in 2022 and US$53.1 million (RM251.6 million) in 2021.
“In the first quarter of this year, there were already US$181.2 million (RM852.6 million) in transactions,” Dharmayanti said. The figures represent the volume of ringgit and rupiah transactions.
“There is a strong upward trend in the use of local currencies for trade settlements between Indonesia and Malaysia, especially since both countries have recognised each other’s QR code payment systems since last May,” she said at the forum.
Malaysia is among four countries that Indonesia is partners with in local currency transactions (LCT). The others are Thailand, Japan and China.
Dharmayanti said Jakarta has made it an incentive for importers to settle transactions in rupiah within the LCT framework by awarding them a special scoring value.
“This can reduce their risk of being placed in the red lane during customs clearance at entry points,” she added.