Malaysia central bank opens office in Beijing

Malaysia's central bank opened its first representative office in Beijing on November 15, a "reflection of the growing importance of China in the global economy and the international financial system", governor Zeti Akhtar Aziz said in a speech marking the event.

The office, which is Bank Negara Malaysia's (BNM) third globally, after London and New York, and first ever in Asia, will serve as a "key point" for the Chinese financial community to engage Malaysia, according to Zeti. The central banks of Thailand and Singapore have recently established a similar presence in China.

The BNM's Beijing office, which was first announced in April 2011, signals the latest phase in an economic relationship that has developed steadily since July 2005, when Malaysia and China partially liberalised their currencies at the same time. The BNM was also among the first central banks allowed to invest in China's onshore fixed-income market and granted access to the country's interbank bond market.

The two countries' central banks signed a currency swap agreement in 2009, which was expanded to 180 billion yuan ($29.5 billion) in 2012 – a reflection of growing trade and financial interlinkages. In 2010, a direct market quote of renminbi against the ringgit was initiated in the Kuala Lumpur interbank market and the interbank foreign exchange market on the China Foreign Exchange Trade System (CFETS). To further facilitate transactions, the real-time gross settlement (RTGS) payment system in Malaysia has also been expanded since 2012 to include settlement services in renminbi, Zeti said on Friday.

"The size of renminbi trade settlement in Malaysia is expanding progressively, reflecting the shift among both Malaysian and Chinese companies across the commodity, manufacturing and services sectors," the governor added. She noted that 19 financial institutions in Malaysia now facilitate renminbi trade settlement – double the number in 2009.

"There is also a growing interest in raising financing in renminbi in the Malaysian bond market. In 2011, Khazanah Nasional Berhad successfully issued the world's first offshore renminbi sukuk in 2011 and subsequently Axiata Group Berhad issued the world's first rated renminbi sukuk in 2012," Zeti said. Two of Malaysia's biggest banks, Maybank and CIMB, operate in China while Chinese behemoths Bank of China and ICBC have operations in Malaysia.

MoU to establish cross-border collateral arrangement

Zeti also announced on November 15 the introduction of a Renminbi Liquidity Facility (RLF) for licensed onshore banks "to facilitate more effective renminbi liquidity management" in Malaysia by providing an "additional avenue" for licensed onshore banks to obtain or invest in renminbi through the BNM.

"The bank, through its own access to the interbank market in China, will offer these liquidity facilities via the renminbi/ringgit foreign exchange market, and the renminbi money and repurchase markets in the Malaysian interbank market," Zeti said.

She added the two central banks had signed a memorandum of understanding "to establish a cross-border collateral arrangement", giving financial institutions access to the central banks' liquidity facilities.

"With the progressive move by China towards the internationalisation of their financial system," Zeti said, "it would be inevitable that the renminbi will become an important reserve currency in the international financial system."