In March 2023, Saudi Arabia announced they are considering accepting the Chinese Yuan (CNY) in return for petroleum sales to China. Proponents of BRICS took this announcement as hard evidence that the global economy is tired of the hegemony of the US Dollar in international trade, especially in the petroleum industry.

Malaysia on Chinese Yuan

On the 4th of April 2023, Prime Minister Datuk Seri Anwar Ibrahim said that Malaysia does not need to continue to depend on the US Dollar to attract investment into the country. The West has since construed his statement that Malaysia would adopt CNY or RM for bilateral trade for both nations.  

Some quarters in Malaysia and globally see the adoption of BRICS currencies as a matter of financial independence. They see the adoption of the USD in international trade as a significant trade currency, only fueling the US hegemony and infringing on their national sovereignty.

In light of the Russo - Ukraine war, the United States has been a leading proponent for Ukraine and has pushed various sanctions against Russia. The US uses its clout in global trade, the ubiquitousness of the USD, and the US financial system to enforce the multiple sanctions levied on Russia. These observers, especially those based in Third World nations, see this as unfair, especially when considering that the US did not take any criminal action against its then President, George W Bush, for the false pretext that Iraq was trying to develop weapons of mass destruction (WMD) when he declared war on Iraq under Saddam Hussein.

Coupled with China is seen trying to develop the infrastructures in third-world nations under its One Belt One Road (OBOR, also known as Belt and Road Initiatives - BRI) Programme.

However, adopting BRICS currencies, especially the Chinese Yuan, is problematic. Previous attempts by the Malaysian government to give greater importance to its relationship with China have faced political backlash. Then Prime Minister Datuk Seri Najib Razak was even accused of selling off the country to China for his various projects with the Chinese government. All the subsequent prime ministers not continuing the deals that he had made with China, to some extent, had given even more significant concessions to the original agreements. Therefore, there will be some level of political fall-out, especially when China is aggressively trying to force its control over its claim over a large swathe of the South China Sea, including parts of Malaysian territorial waters, especially Beting Patinggi Ali and Beting Serupai. The territorial water spat could even kill off any possible economic tie-up, especially in the adoption of the currency as a critical foreign reserve, as we would not want to be in a situation where all of our foreign currency reserves are in the money of the nation that is hostile towards us.  

Another problem, or rather challenge, in adopting the Chinese Yuan is the apathy of both Malaysian businesses and Chinese exporters to adopting either the Chinese Yuan or Ringgit. In 2011, Bank Negara Malaysia gave the Bank of China (BoC) the green light to open a Renminbi clearing house in Kuala Lumpur to encourage trade between both nations in Yuan. However, trading between both countries continues mainly in USD.

Another problem with the proponents of adopting the Chinese Yuan as the foreign currency reserve is they propose to outright drop the USD from the bucket list of foreign currency reserves. Replacing the USD outright with CNY is not prudent, as the United States is still a significant trade partner with Malaysia. Malaysia exports USD54.7 billion of goods and services to the US while importing goods and services worth USD18.1 billion, resulting in a trade deficit of USD36.7 billion in our favour. Replacing the USD foreign currency reserve will make us an unattractive market and supplier to the US.

Be Prudent 

Instead, any move to the foreign currency reserve should reflect the nature of Malaysian international trade and long-term relationships and follow the economic tide's ebb. Be prudent, and never keep all your eggs in the same basket. 

Danny Liew is a content creator under the Newswav Creator programme, where you get to express yourself, be a citizen journalist, and at the same time monetize your content & reach millions of users on Newswav. Log in to creator.newswav.com and become a Newswav Creator now!

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