Malaysia eases foreign exchange rules to woo foreign investment
Posted: 22 March 2007 0012 hrs

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KUALA LUMPUR : Malaysia's central bank on Wednesday announced a slew of new measures to liberalise its foreign exchange rules to attract overseas investors and facilitate trading in the ringgit.

The measures, to take effect on April 1, follow on from a drive since 2003 to liberalise foreign exchange rules.

"We started this liberalisation as we felt that it will strengthen the domestic financial system," said central Bank Negara governor Zeti Akhtar Aziz at the release of the bank's annual report.

"So far we have seen the benefits of our previous liberalisation and we've seen also the very orderly implementation," she said.

Under the changes, investment banks in Malaysia will be allowed to undertake foreign currency business. Limits imposed on foreign currency accounts maintained by residents in licensed onshore banks will also be abolished.

The banks will be allowed to appoint overseas branches to facilitate the settlement of any ringgit assets of their non-resident clients.

Residents will also be allowed to open and maintain joint foreign currency accounts for any purpose. Previously, they were only allowed to do so for education and overseas employment reasons.

Zeti also said the central bank would consider allowing the ringgit to trade offshore if the move was seen as beneficial to the country.

"In terms of internationalisation of our currency, at the appropriate time, we will also make the assessment whether we have the preconditions in place to benefit from that liberalisation," she said.

Malaysia imposed capital controls in 1998 at the height of the Asian financial crisis, only removing its peg of 3.80 to the dollar in July 2005 in favour of a managed float.

However, it has yet to lift the ban on trading the ringgit offshore.

"We will measure carefully, at each point in time, these liberalisations that we undertake, to look at both the benefit to the country, as well as the risk it brings," Zeti said.

The ringgit has been trading at nine-year highs against the dollar and has risen by about 9.0 percent since the removal of the peg.

"So long as the strength of the ringgit reflects the underlying economy, that is a positive development," Zeti said.

At the close of trade on Wednesday the ringgit was at 3.4740 to the dollar. - AFP/de