Bilateral investment is also gaining importance, notably with the two recent Government-to-Government agreements, involving the establishment of an industrial park in both countries. The cornerstone to the strength of our bilateral economic relations is the ability to continually harness the synergies and economic complementarities that exists between our economies. The use of renminbi for trade settlement provides a natural hedge for businesses with renminbi obligations. It also generates cost savings and minimises exchange rate risks, in particular, it reduces the exposure to exchange rate fluctuations of a third currency. While the dollar will continue to remain an important currency for settlement of trade obligations, the availability of renminbi would provide companies an additional currency for such trade settlement. BIS central bankers’ speeches  1  The benefits to be gained can be significant given the large and increasing trade base with China which stood at RM167 billion in 2011. By undertaking the transactions in local currency, exporters and importers in China would be able to eliminate the hedging and conversion costs. The reduction in transaction costs for the exporters and importers will contribute towards more competitive pricing for both exporters and importers. The full potential benefits are however expected to be realised in stages. The benefits will rise as the trade volume settled in renminbi increases and reaches a critical volume in terms of size which will in turn allow for the realisation of economies of scale.
For the renminbi to be considered an option for both exporters and importers to settle their trade obligations in addition to the major currencies. There needs to be an efficient and cost-competitive source of financing in renminbi and a diversified investment avenue. In particular, it is recognised that discernible progress in three areas are needed to be put in place at an early stage to support the use of renminbi, that is, to improve access to renminbi liquidity, to have the supporting infrastructure and framework and to provide information on the use of the renminbi for trade and productive investment transactions. More than three years ago, in early 2009, the Bank entered into a Currency Swap Arrangement (CSA) Agreement with the People’s Bank of China, which was renewed early this year with an expanded amount of Renminbi 180 billion. The objective is to ensure a ready supply of renminbi in the domestic financial markets to meet the demand by businesses. An important piece of the infrastructure that was put in place in 2010 was the provision of direct quotes between renminbi and ringgit in the interbank foreign exchange market on the China Foreign Exchange Trade System (CFETS). Efforts were also made to enhance the transparency in the exchange rate between renminbi and ringgit for the trade-related settlement transactions. In March this year, the real time gross settlement system in Malaysia was expanded to include settlement services in renminbi.