Wednesday, April 12, 2023

Anwar’s de-dollarisation: Will it hurt Malaysia?

Dedollarisation is a process of substituting US dollar as the currency used for (i) trading oil and/or other commodities, (ii) buying US dollars for the forex reserves, (iii) bilateral trade agreements, and (iv) dollar-denominated assets.

Mont Kiara, April 12: The RM170 b worth of MOU Malaysia signed with China during Anwar Ibrahim’s state visit recently is “historic” not just because of the potential investment involved but also for marking the start of Anwar Ibrahim’s dedollarisation policy for Malaysia. 

The Prime Minister made his pursuit for dedollarisation quite clear when he told Parliament on April 4, a few days after his return from Beijing, that There is no need to continue depending on US dollar for investment.

The problem with many Malaysians, even the smarter ones, is that we are so obsessed with disputing our own Prime Minister’s claim that, just four months into his premiership, the country could actually attract that much investment potential. “Ah, those are just MOU” was the detractor’s favourite comeback line. (For context, read my first posting on the China visit here). 

The “bigger story”, as one analyst who resides in the US told me, is that China is pushing its own currency as Asia’s “reserves”. And that with the RM170 b trade deal with China, Anwar has started to steer Malaysia away from the US-D!

 Elsewhere, Anwar’s dedollarisation has not escaped notice. Because eslewehere in the world, dedollarisatio is taking shape. In its report Countries worldwide are dropping the US dollar: De-dollarsisation in CHina, Russia, Brazil and Asean the independent noted how Malaysia is “publicly advocating dedollarisation”.

Malaysia’s Prime Minister Anwar Ibrahim met with Chinese President Xi in Beijing on March 31, where the two leaders discussed plans to weaken US dollar hegemony and even create an “Asian Monetary Fund”.

This is a frontal challenge to the US-dominated International Monetary Fund (IMF), which emerged from the 1944 Bretton Woods Conference that established the dollar as the global reserve currency.

Anwar proposed the Asian Monetary Fund at the Boao Forum in China’s Hainan province.

“There is no reason for Malaysia to continue depending on the dollar”, Anwar said, in comments reported by Bloomberg.

The media outlet added that Malaysia’s central bank is developing a payment mechanism so the Southeast Asian country can trade with China using its own currency, the ringgit.

ASEAN has also been talking about their predicament in relations to the US dollar. While Anwar was in China, the grouping’s finance ministers met in Bali and they talked about dumping the greenback. “We must remember the sanctions imposed by the US on Russia,” President Jokowi of Indonesia was quoted as saying. (Read Asean countries take steps to reduce reliance on US dollar),

However, an ASEAN consensus is not quite guarantee. As in the past (for example, when Tun Dr Mahathir Mohamad was advocating the East Asia Economic Group, later Caucus, idea), Singapore could be the dissenting voice. Understandably so, as Singapore is the only economy in the region that could be adversely affected by this policy, the analyst added.

“Singapore’s status as the financial centre of Southeast Asia has historically been closely tied to its connections with the West and their capital, technology and values. However, as China’s influence in the region grows and its currency gains prominence, Singapore could face significant challenges in maintaining its position,” he said.

But how is that good for Malaysia? 

How dedollarisation will benefit us is a national conversation that the Anwar Administration needs to initiate in haste. Right now, information is at best trickling out of the government’s communication apparatus. Wisma Putra is quiet on the matter; in the past, it would be its responsibility to take the lead. MITI has been rather shy, too, except for its Minister Tengku Zafrul Aziz’s commitment to ensure that the RM170 b MOU will be converted into contracts and jobs.

So far, Anwar is walking the talk. What is the rest of his Cabinet doing?

The media need to have a solid grasp on the matter in order to argue the idea of dedollarisation and the setting up of the Asian Monetary Fund. The financial and economic experts must help break down  the mechanics of this policy so that enterprises are aware of the opportunities that they may seize. The ordinary folk also want to know how this will improve their purchasing power and quality of life.

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