CLEAR policies, including for the Madani economy, the National Energy Transition Roadmap and the New Industrial Master Plan 2030, can help the government attract investments and strengthen the value of the ringgit, Prime Minister Anwar Ibrahim said.

He said the ringgit’s performance this year was largely driven by external factors, such as the sharp strengthening of the US dollar that has been driven by higher US interest rates, as well as China’s weaker-than-expected economic conditions.

He said most of the world’s currencies have experienced depreciation in the year 2023, including the ringgit, because of the actions of the US Federal Reserve to interest rates.

“The value of the ringgit does not depend on fundamentals such as good (economic) growth, good investment, falling inflation or falling unemployment rates. The falling value of the ringgit is not in line with the economic policies introduced by the government.

“Only by strengthening the local economy can we increase the value of the ringgit and we take the approach of not increasing the overnight policy rate (OPR) on consideration of the increase in the value of the US dollar,” said Anwar during the Minister’s Question Time session in the Dewan Rakyat today.

He was answering Awang Hashim’s (Pendang-PN) question about the effectiveness of the government’s measures in dealing with the impact of the ringgit’s falling value, which has hit RM4.73 against the US dollar.

The prime minister said the government, through Bank Negara Malaysia (BNM), has also implemented short-term measures to ensure that the ringgit’s adjustment is in order.

Anwar said to deal with the volatility of the foreign exchange market, BNM will continue to manage risks from domestic and external developments, and is prepared to use its operational policy instruments to ensure orderly market conditions.

“Several steps were taken by Bank Negara, such as setting exports in ringgit, then in several conferences I discussed with China and also Asean in Jakarta, we requested the use of the local currency to trade.

“In fact, China has welcomed it, 20-28% of the large investments, actually tens of billions, do not use US dollars but the ringgit, so this (helps) the ringgit, the same with Thailand.  

“So far (the countries) we have succeeded in (convincing them) to use the local currency are Indonesia, Thailand and China but not in all areas; if they are involved in international trade commodities, this is one of the suggestions,” said Anwar.

He explained that through the Local Currency Settlement Framework (LCSF) initiative, Malaysia is able to have such an arrangement with Indonesia and Thailand.

He noted that Malaysia was also one of the first countries to sign a currency arrangement agreement with the People’s Bank of China in 2009.

He explained that the agreement further facilitates the use of renminbi and ringgit for trade and investment payment purposes between China and Malaysia and as a measure to reduce the use of dollars in trade activities.

The prime minister admitted that it is difficult to completely stop the use of the US dollar in trade at this point in time. “However, Malaysia is more active and aggressive in emphasising the need to use the local currency,” he added. – Bernama, October 10, 2023.