For a couple of decades we had failed to keep price and wage increases in check. However, a fixed exchange rate relationship is not, of course, compatible with an inflation rate that systematically exceeds that in the country to which the exchange rate is tied – sooner or later the exchange rate relationship must collapse. The rapid increases in wages and prices also repeatedly came into collision with the fixed exchange rate and the result was that the Swedish currency was devaluated on several occasions from the mid-1970s onwards. The economy was thus characterised by "boom-bust-cycles” with alternate strong acceleration and sudden braking. However, the fact that the fixed exchange rate did not work as a nominal anchor in Sweden does not mean that it could not function well in other countries; it has unquestionably done so in many cases. So let me therefore move on and mention some general advantages and disadvantages of the two methods. 3  2  See Easterly, W. and S. Fischer, (2001), “Inflation and the Poor”, Journal of Money, Credit, and Banking 33, 2 (part 1), 160178. For a more detailed account of the advantages of low, stable inflation, see for instance King, M., (2002), ”The Inflation Target Ten Years On”, Speech at the London School of Economics, November 19. 3  A more detailed discussion of the advantages and disadvantages of these and other monetary policy regimes can be found in, for instance, Mishkin, F.S., (1999), ”International Experiences with Different Monetary Policy Regimes”, Journal of Monetary Economics 43, 579-605.
In 2016 intra-regional trade contributed USD521 billion or 23.5% of total trade. IntraASEAN investments rose to a record level of USD24 billion in 2016 and accounted for 25% of total FDI flows into the region. Within the region, Indonesia and Thailand are important partners to Malaysia both in trade and direct investments where there is continuous growth propelled by inter-company linkages and cross-border investments. In 2016, Malaysia shared a bilateral trade volume of USD13.8 billion with Indonesia and USD13 billion with Thailand. However, only 5.8% and 11.4% of our trade with Indonesia and Thailand, respectively were settled in local currencies. This is an enormous business opportunity for the financial sector, which has yet to be realised. Similarly, on the investment front, Malaysia has invested USD13 billion and USD2 billion of direct investments into Indonesia and Thailand, as at second quarter of 2017. Indeed, the completion and enhancement of the Frameworks is an important step towards the use of local currencies to support cross-border settlements for trade and direct investments among the three countries. It is an opportunity to mitigate the impact of volatilities in major trading currencies on regional trade and investment activities. We can recall the Global Financial Crisis, where the tightening of global US dollar liquidity was a contributor to the 19% contraction of total trade and 11.5% contraction of total inward FDI into the region.