KUALA LUMPUR, 28 April 2023:
The Malaysian prime minister’s proposal to create an Asian Monetary Fund can be seen as a natural development following China’s shift away from the US dollar, Kar Yong Ang, an OctaFX financial market analyst, in a recent market report.
“The US dollar plays a vital role in the U.S. economy, owing to the fact that it accounts for more than 80% of international trade finance. The US dollar also constitutes 60% of the world’s foreign exchange reserves and dominates the bond and currency markets.
“However, the widespread use of the US dollar hinders other countries’ (particularly emerging markets) access to international capital. For instance, Russia currently faces financial sanctions and frozen foreign exchange reserves, while Brazil’s president has expressed dissatisfaction with the use of the US dollar.
“The US dollar is also not favoured by many Asian economies, as Asean finance ministers and central bank governors are exploring ways to reduce their dependence on the dollar and shift towards local currencies.”
Ang noted that Malaysian PM Datuk Seri Anwar Ibrahim had commented this month: “There is no reason to continue to depend on the US dollar. In our negotiations between Malaysia and Indonesia, we use ringgit and rupiah.”
He added that Anwar is in favour of the Asian Monetary Fund, which has been well received in Asia – which Ang said should be a significant support as Malaysia has demonstrated the fastest economic growth rate in Asia over the last two decades.
“China aims to make the yuan the world’s reserve currency and an alternative to the US dollar. Using the yuan in Asean countries could be a solution. However, the strict control of the exchange rate by Chinese authorities makes it challenging to promote the use of yuan there.
“Another major world currency, the euro, will never match the level of liquidity of the US dollar in Asian countries. The proposed Asian Monetary Fund could enable countries in the region to pool their currencies, providing a way to move away from the IMF and the US dollar in times of crisis.
“Several governments, including Japan, Malaysia, Thailand, Indonesia, and the Philippines, have already signed bilateral agreements using only their national currencies.
“The cohesive actions of Asian states will help enhance Malaysia’s intra-trade relations within the region, which will positively affect the liquidity of the ringgit, making it more accessible.”
Ang further noted that as China accelerates de-dollarisation worldwide, billions of dollars of liquidity remain unclaimed, leading to the strengthening of alternative currencies, especially Asian ones.