Background of US one hundred dollar and China Yuan notes

KUALA LUMPUR – The ramping up of Chinese investments here in the next few years may prompt a widespread use of China’s currency renminbi in Malaysia, economists have predicted.

In a report by Chinese news agency Xinhua, CIMB Investment Bank economic research head Michelle Chia said when coupled with the great economic ties between the two nations, it is likely that businesses in Malaysia would want to integrate the usage of renminbi.

“Greater foreign direct investment inflows from China and initiatives such as the DFTZ are likely to promote more two-way trade and investment flows between Malaysia and China,” she reportedly said, referring to the Digital Free Trade Zone.

Last year, a number of major deals involving Chinese firms have been secured.

This included the launch of Alibaba Group-led DFTZ, the purchase of 49.9 per cent stake in Proton by Zhejiang Geely Holding, and the launch of the East Coast Rail Link, among others.

She added the usage of renminbi will also be further promoted by three factors ― namely the continuation of its liberalisation, expansion of China’s domestic renminbi products and services, and greater global renminbi liquidity that lower the costs and risks of its settlement.

Chia also projected a long term increase for renminbi’s internationalisation, in line with China’s ever-expanding economy in global commerce and financial markets.

She added the expansion of trade and investment links between the country and its neighboring regions, as a part of China’s Belt and Road Initiative, would encourage further adoption of the currency.

United Overseas Bank (Malaysia)’s economist Julia Goh concurred with Chia, adding the Initiative would increase other local currency-denominated funding, as the Chinese government has committed to help fund overseas businesses.

It was said that however, the increase of Renminbi usage may still take time to materialise as US dollar is still at the top of the world payments currency.

Meanwhile, Sunway University Economics professor Yeah Kim Leng told Xinhua that the economic relationship between Malaysia and China will continue to further improve over years.

“Malaysia is well-positioned to benefit from the higher connectivity due to its central location for sea, air and land transportation, favorable policy environment and strong capacity to absorb foreign investment inflows,” he reportedly said.

Despite being the world’s second largest economy, China’s renminbi is still small in global currency trade due to the restrictions on its usage in financial activities.

It is currently managed by a floating band, unlike the US dollar which is freely traded and any appreciation or depreciation of the greenback is mainly determined by supply and demand, reflecting its real value.

– Malay Mail