The State of the Nation: Central bank allows flexibility in management of export proceeds

This article first appeared in The Edge Malaysia Weekly, on August 20, 2018 - August 26, 2018.
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BANK Negara Malaysia is according greater flexibility in the management of export proceeds to facilitate operational efficiencies and risk management by businesses and financial institutions.

In a statement issued in conjunction with Bank Negara’s release of gross domestic product figures for the second quarter, governor Datuk Nor Shamsiah Mohd Yunus said exporters are allowed to automatically sweep export proceeds into their trade foreign currency accounts maintained with onshore banks to meet up to six months of foreign currency obligations without needing to convert the proceeds into ringgit.

“The flexibility is available upon exporters establishing their six months’ foreign currency obligations with their respective onshore banks,” she said.

Further, the flexibility is also granted for the hedging of foreign currency obligations by residents upon application to the central bank.

This is to hedge foreign currency obligations beyond six months and foreign currency exposures arising from invoices issued in foreign currency under international pricing practices for domestic trade in goods and services.

Shamsiah said a wider access for non-residents to the onshore financial market is allowed, of which non-resident corporations are allowed to trade in ringgit-denominated interest rate derivatives via the appointed overseas offices — subject to back-to-back arrangements with onshore banks.

“This aims to further deepen the onshore market for interest rate derivatives to support risk management by businesses,” she added.

UOB Global Economics & Market Research sees the relaxation as a positive move for the ringgit although the currency still faces pressure against the greenback due to external factors, namely developments in emerging markets, rising US-China trade tensions, higher US interest rates and tightening global liquidity.

Amid volatility in the ringgit in late 2016, Bank Negara announced measures and incentives for the treatment of export proceeds, including requiring exporters to convert up to 75% of their export proceeds into ringgit.

 

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