US adds Malaysia to watch list for currency manipulators

The US Treasury says Bank Negara Malaysia has over the last few years intervened in both directions in foreign exchange markets.

PETALING JAYA: The US has added Malaysia to its monitoring list of major trading partners that merit close attention to currency practices and macroeconomic policies, according to the Treasury’s report to Congress on macroeconomic and foreign exchange policies released this month.

According to the report, China, Japan, Korea, Germany, Italy, Ireland, Singapore and Vietnam are also on the list.

“Malaysia has maintained a significant bilateral goods trade surplus with the US since 2015, registering US$27 billion last year,” it said.

“However, Malaysia’s current account surplus has narrowed substantially over the past decade on higher consumption and investment, falling to 2.1% of GDP in 2018.”

It added that Bank Negara Malaysia (BNM) had over the last few years intervened in both directions in foreign exchange markets.

“The Treasury estimates that in 2018, the central bank made net sales of foreign exchange of 3.1% of GDP to resist depreciation of the ringgit.

“Malaysia’s external rebalancing in recent years is welcome, and the authorities should pursue appropriate policies to support a continuation of this trend, including by encouraging high-quality and transparent investment and ensuring sufficient social spending, which can help minimise precautionary saving.”

Economies are placed on the monitoring list if they meet two of three criteria in the Trade Facilitation and Trade Enforcement Act 2015.

The criteria are:

  1. a significant bilateral trade surplus with the US;
  2. material current account surplus; and
  3. persistent, one-sided intervention in foreign exchange markets.

Once on the monitoring list, economies will remain there for at least two consecutive reports to help ensure that any improvement in performance versus the criteria is durable and not due to temporary factors.

The report said a significant decline in Malaysia’s overall goods trade surplus had been a key factor in the narrowing of the current account surplus over the last decade.

“Nonetheless, the goods trade surplus remains large and steadily exceeded 8% of GDP in recent years.

“The goods trade surplus is partly counterbalanced by a large income deficit, in the range of 4-5% of GDP in recent years,” it said.

BNM said there would be no consequences to Malaysia’s economy.

“The Malaysian economy remains resilient, underpinned by strong economic fundamentals, including the flexibility accorded by a floating exchange rate and strong external balance,” it said.

It also said Malaysia supports free and fair trade and does not undertake unfair currency practices.

“Malaysia adopts a floating exchange rate regime. The ringgit exchange rate is market-determined and is not relied upon for exports competitiveness,” it said.

It added that any intervention in the foreign exchange market is limited to ensuring an orderly market and avoiding excessive volatility of the exchange rate that may affect macroeconomic stability.

“The fact that the ringgit has over the years faced multiple episodes of significant appreciation and depreciation points to the flexibility of the exchange rate,” it said.

BNM also said about half of Malaysia’s trade surplus is driven by commodity exports, which is largely influenced by global demand and supply as opposed to the exchange rate.

“The manufactured goods surplus, on the other hand, is partly driven by the long-standing presence of large export-oriented multinational corporations in Malaysia, including from the US.

“The current account surplus is thus a reflection of the diversified nature of the Malaysian economy,” it added.