PETALING JAYA: More importers of Malaysian products are using other currencies to pay for their purchases, bypassing the US dollar (USD) due to its volatility, said Federation of Malaysian Manufacturers (FMM) president Tan Sri Soh Thian Lai.
He said the US Federal Reserve has been increasing the interest rate by 0.75 percentage points each quarter as a move to fight inflation. However, last Wednesday, the increase was just 0.25 percentage points, which is the lowest in over a year. But this has not changed the position of importers from using other currencies.
Soh said importers from China have requested to pay in renminbi while Malaysian exporters are being paid in euros for exports to the European Union.
“Despite its volatility, the USD is generally used as the principal financial instrument for export proceeds as it is widely accepted and requested by foreign buyers.
“Additionally, manufacturers also need to import raw materials and components, and pay their foreign suppliers in USD. The US dollars received from exports are used to offset suppliers, in this way, there will be no loss in the exchange rate.”
Soh said a strong ringgit would mean cheaper imports for manufacturers, thus lowering costs.
He added that this would particularly benefit companies that are net importers and have high import volume for their raw materials, which are currently impacted by the weakening ringgit and global inflationary pressures.
Sunway University economics professor Dr Yeah Kim Leng said the advantage of using currencies other than the USD is that it will boost trade and investment between the countries involved, and help to prevent currency volatility.
“Malaysian importers and exporters are using the renminbi to pay for Chinese-made goods as there is a trade settlement facility. Long-term contracts can be agreed and settled using own currencies.”
He said BRIC (Brazil, Russia, India and China) nations currencies can also be used for international trade, adding that this could be achieved if goods are no longer traded in USD but in those currencies. However, it is important to set up a settlement facility.
Yeah said 70% to 80% of world trade is conducted in USD but it has been declining as nations start using other currencies for trade settlement.
“Purchasing of machinery and materials will be cheaper with a strong ringgit as it will help companies improve their productivity with better machinery. The ringgit needs to strengthen against the country’s major trading partners. The offset against a strong ringgit is that exports will become more expensive.”
According to Yeah, a strong ringgit reflects strong growth.
“The nation’s well-being and wealth will also increase, and the country can sustain a strong economy. This will lower inflation and, hence, benefit the public.”
He noted that the ringgit has been undervalued since the Asian financial crisis, but “ever since the appointment of Datuk Seri Anwar Ibrahim as Malaysia’s 10th prime minister, the ringgit has been recovering its position. Before his appointment, the ringgit hovered around RM4.50 to the USD but it is now around RM4.20”.
Universiti Tun Abdul Razak economist Dr Barjoyai Bardai said there are pros and cons to a strong ringgit because the country’s exports will become more expensive and importers may look at other alternatives.
However, he added that a strong ringgit will benefit the nation as it will make imports cheaper. But ultimately, there will not be a huge difference as 80% of Malaysian products are exported and about 80% of goods are imported.
“Those who will benefit from a strong ringgit are foreign and short-term investors who want strong exchange rates as they believe their money will be safer.”
