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Korea, Malaysia to Make Trade Settlements without U.S. Dollars
Korea-Malaysia Currency Swap
Korea, Malaysia to Make Trade Settlements without U.S. Dollars
  • By matthew
  • May 27, 2014, 09:28
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5,000 ringgit, which is equivalent to 1.6 million won or US$1,550. (Photo by Yun Huang Yong via Flickr)
5,000 ringgit, which is equivalent to 1.6 million won or US$1,550. (Photo by Yun Huang Yong via Flickr)

 

The five trillion won, 15 billion ringgit, or US$4.7 billion currency swap agreement between Korea and Malaysia has been employed in a bilateral trade settlement. Still, not a few experts point out that the effect of the new payment method would be somewhat limited, given past trade practices.

The Bank of Korea and the Ministry of Strategy and Finance announced on May 26 that currency swap funds would be used to this end from June this year. The central banks of the two countries are going to deposit their currencies with each other soon, within the limits of the currency swap agreement. 

This is expected to contribute to the internationalization of both currencies by reducing the countries’ extremely high dependence, which amounts to 98 percent, upon the U.S. dollar in transactions in trade. Malaysia is the fourth-largest trade partner in the ASEAN for Korea and 8.4 percent of the import of natural gas into Korea was from Malaysia in 2012, which was equivalent to US$2.3 billion. Once currency swap funds are employed in trade settlements, Korea’s natural resource imports can show higher stability despite financial uncertainties. 

However, many insiders are pretty skeptical about the utilization of the method. Most Korean corporations do not prefer won-ringgit settlements because the exchange fee is higher than when the U.S. dollar is used. “The settlement currency will never be changed unless the exchange fee is cut,” said a local corporate executive.