PETALING JAYA: Although Asian currencies have shown stellar performances this year, one should not get carried away by making specific bets on particular currencies, without acknowledging the associated risks, experts said.
This applies to investing in currencies as well as using regional currencies for trade purposes.
“As attractive as regional currencies are for the time being, we need to take measured steps. The public in general will have go through a period of awareness and education,” said OCBC Bank (M) Bhd head of wealth management Ong Shi Jie.
Dr Yeah Kim Leng
RAM Holdings Bhd’s chief economist, Dr Yeah Kim Leng, believes the main risk of using regional currencies for trade is the possible imposition of capital control measures. Such a move could be taken by governments to curb extensive capital inflows and outflows in the region.
Indeed, in the middle of this year, the United Nations Economic and Social Commission for Asia and the Pacific recommended that the region employed capital controls to moderate short-term capital flows that might create asset bubbles and inflationary pressures.
Earlier in the year, CIMB Research had cited the imposition of capital controls as one of the possible factors that could affect the global financial markets.
RAM’s Yeah said if capital controls were imposed, access to regional currencies would be limited and there would be “convertibility issues”.
“In addition, the currency volatility risk factor will also present.
“But we think that compared to the currencies of the advanced economies, the volatility risk is lower with regional currencies,” Yeah said.
“The scale and speed of adoption (of regional currencies for trade) will be driven by market needs,” he added.
In recent times, there has been a lot of talk about using regional currencies to conduct trade in the Asian region instead of the US dollar which has largely been the base currency, owing to improving liquidity of Asian currencies and increasing trade in the region.
In fact, China’s recent move to allow the ringgit to trade against the yuan, coupled with Bank Negara’s liberalisation measures which, among others, allow residents to undertake settlement of international trade with non-residents in ringgit, are reflections of this.
“As the volume of intra-regional trade increases, especially with China and amongst Asean countries, we see a gravitation towards the use of regional currencies for invoicing and settlement especially if it results in lower transaction cost and risk premium,” Yeah said.
Not discounting the risks involved in using regional currencies for trade, Yeah said that it was timely for member countries to promote the greater use of regional currencies for invoicing and settlement.
“It would deepen economic and financial integration,” he said.
He noted that the Asean Free Trade Area and the Asean Economic Community, which were supposed to come into fruition by 2015, also bode well for the usage of regional currencies.
AmBank Group treasury and markets managing director Teng Chean Choy believes that while the use of the ringgit is expected to increase especially in trades within China and Asean, such a shift would likely be gradual.
“The US dollar still remains the world’s reserve and trade invoicing currency,” he said.
author comment.. "yeah it too bad to y'll 2 figured out what he concluded, neither the euro and pound growing significant with Asia's current currencies, probably the impact of this incremental is only temporary due to their past performance....
The East Asian Currency Crisis
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