Malaysia is the next country looking to expand the use of its local currency, the ringgit, in international trade to reduce reliance on the U.S. dollar.
On Tuesday, Malaysian Prime Minister Anwar Ibrahim revealed that Malaysia has signed agreements with Indonesia, Thailand and China — its largest trading partners — to promote trade and investment in local currencies.
“We want to increase the use of local currency in trading with China … or de-dollarization. To stop the reliance on the U.S. dollar is difficult, but Malaysia will be more active and aggressive in the use of ringgit,” Ibrahim told the Malaysian parliament.
The U.S. dollar has recently weakened against the ringgit. DXY, the dollar’s gauge against major peers, recently fell from 106.22 to 105.76 points. Mohd Afzanizam Abdul Rashid, chief economist and social finance head at Bank Muamalat Malaysia, explained that it was caused by the decline in the U.S. Treasury yield.
Moreover, Atlanta Federal Reserve president Raphael Bostic offered a dovish policy outlook, saying there was no need for the U.S. central bank to raise its benchmark interest rate further.
“As such, there’s a chance that the ringgit would appreciate versus the U.S. dollar,” said Abdul Rashid in an interview with Bernama.
In addition to de-dollarization, Malaysia will implement structural reforms to attract investments, boost economic growth and strengthen the ringgit.
Ibrahim will present the 2024 budget this Friday. The government is expected to cut subsidies for the wealthy and increase support for low-income households in response to a worldwide economic slowdown and financial limitations.
"We succeeded in using local currencies with Indonesia, Thailand and China. However, not all (countries) are involved in commodity and international trade. That is why I suggest de-dollarization."
Anwar Ibrahim, Prime Minister of Malaysia
De-dollarization trend persists
The U.S. dollar has been the international reserve currency for 80 years. However, its share of global reserves has fallen from 73 percent in 2001 to 58 percent in 2023. While the greenback still dominates global trade, international players are shifting to alternative currencies.
The widespread U.S. sanctions — which now affect 29 percent of the global economy, including 40 percent of international oil reserves — and interest rate hikes have pushed the de-dollarization trend. Russia’s restricted access to U.S. dollars and frozen assets demonstrates the risks of relying on the greenback.
Around 85 countries — including BRICS, ASEAN, Argentina, Turkey, Iran, the United Arab Emirates (UAE) and Saudi Arabia — are de-dollarizing. BRICS is reportedly planning a common currency, while ASEAN is enhancing its cross-border digital payment system to settle in local currencies.
Many economists believe that the increasing use of national currencies in international trade is reducing the U.S. dollar’s special status. Advocates of de-dollarization argue that the dollar and the financial institutions linked to it are outdated and should no longer be the main source of transactions in international financial markets.
Ringgit vs. other currencies
The Malaysian ringgit has lost about 7.5 percent of its value against the U.S. dollar since New Year, but it recently experienced an upward trend. In early Asian trading on Wednesday local time, the ringgit traded at 4.757 against the dollar.
The Malaysian ringgit opened lower against a basket of major currencies on Wednesday, except against the euro. It was trading at 5.0083, an increase from Tuesday’s close of 5.0095. The ringgit also depreciated against the yen and the British pound, trading at 3.1768 and 5.8050, respectively.
Against other Asian currencies, the ringgit weakened against the Thai baht to 12.9344 and traded lower against the Singapore dollar at 3.4644. However, the ringgit strengthened against the Indonesian rupiah to 299.7 and remained unchanged against the Philippine peso at 8.31.