Around Asia's Markets: Malaysia plans to keep mix of reserves stable
May 26, 2005
Marc Wolfensberger 

The Malaysian central bank governor, Zeti Akhtar Aziz, has said that the government does not plan to change the mix of its $74.8 billion of currency reserves and that it may consider changes to the ringgit's peg should China let the yuan strengthen.
 
"We feel very comfortable with the composition of our reserves," Zeti said in an interview at an Islamic banking conference in Doha, Qatar, on Tuesday. The holdings are mainly in U.S. dollars, euros, yen, the British pound and the Canadian and Australian dollars, she said.
 
The ringgit's exchange rate of 3.8 per dollar, set in 1998, may be reviewed should China revalue the yuan, she said.
 
"What China does will have regional implications on the regional currencies, including ours," she said.

Foreigners bought 11.1 billion ringgit of ringgit-denominated assets in the three months to Dec. 31, the most in three quarters, according to central bank figures. Malaysia's benchmark stock index gained 6.8 percent in the last three months of 2004.
 
"People still reckon at some point they'll have to revalue their exchange rate and that's why they park their money there," said Nigel Rendell, an economist at CLSA Singapore. "You've then got the currency upgrade and also the potential to make some money on the stock market."
 
China has said that it will make the yuan more flexible, but it has not said when.
 
"They are thinking about maybe doing something once China has changed its policy," said Rendell. "At some point there will need to be a revaluation of the ringgit."
 
Speculation that Malaysia would dismantle the link increased after former Prime Minister Mahathir bin Mohamad said in January that the government needed to review the exchange rate. Mahathir's successor, Abdullah Badawi, said Wednesday that any decision China made on its currency would affect Malaysia.
 
The currencies of Malaysia's neighbors and largest trading partners, which are allowed to fluctuate, strengthened in the three years to December 2004. The Singapore dollar and the Thai baht both gained 13 percent against the dollar.
 
The U.S. currency lost 35 percent against the euro from 2002 to the end of last year in part on speculation that central banks were redistributing their foreign-exchange reserves.
 
Malaysia began a "gradual" shift from dollar holdings in 2000, Zeti said. The country's reserves have risen from about $20 billion when Mahathir fixed the ringgit to the dollar in 1998 during the Asian financial crisis.
 
The portion of dollars in total central bank reserves was 63.8 percent at the end of 2003, down from 66.9 percent in 2001, the International Monetary Fund said in its annual report last year. Euro holdings rose to 19.7 percent from 16.7 percent.
 
Malaysia's foreign currency reserves have yielded revaluation gains in the past three years, as currencies have appreciated against the dollar, according to central bank data. Those gains amounted to 8 billion ringgit in 2004, 11.9 billion ringgit in 2003 and 6.6 billion ringgit in 2002.

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