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Banking

Malaysia: Ringgit easy

Bank Negara Malaysia, the central bank, announced in March a further relaxation of foreign exchange regulations designed to normalize trading in the Malaysian ringgit.

Local banks are no longer required to limit their net open foreign exchange positions to 20% of capital, and the limit for unit trusts and insurance companies is raised from 30% to 50%. Perhaps the most significant change, however, is the lifting of restrictions on domestic companies preventing them borrowing in foreign currency, one of the key capital controls imposed after the Asian financial crisis.

Before the currency is fully internationalized, the central bank needs to prove its credibility, says Standard Chartered Bank economist Joseph Tan. "A central bank’s credibility is measured in terms of policy effectiveness, actions in the marketplace and communication to the markets," he says. "We see the likely time line for the internationalization of the ringgit as two to three years."

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