KUALA LUMPUR: It may be time to think of solutions out of an over-reliance on the US dollar as the main global reserve currency of countries, says Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz.
While Tengku Zafrul quickly clarified he did not mean abandoning the greenback for another currency, he explained the reliance on the US dollar has caused countries, namely Asian economies, to be at the mercy of decisions and market fluctuations occurring continents away.
“Malaysia remains committed to the global financial architecture as it exists, but sooner or later, these are questions smaller trading nations must consider, uncomfortable as they may be,” Tengku Zafrul said in his closing speech at the Khazanah Megatrends Forum 2022 yesterday.
“With its 4.7 billion population, Asia is arguably the dynamo of global economic growth, now and in the future.
“Much of the commodities needed to make the leap to the so-called ‘digital’ and ‘green’ economies are to be found on our turf,” he added.
Tengku Zafrul said the unique position of the US dollar as the reserve currency of the world means that the greenback often appreciates in uncertain times.
“Thus, a currency’s (non-dollar) position versus the greenback – especially in the short term – is hardly a yardstick of the state of the economy,” he said.
“A world where key countries can adversely affect the growth trajectories of others, including Malaysia, is unsustainable.
“Certain policies may benefit one superpower domestically but they must not end up hurting others and potentially jeopardising global prosperity,” Tengku Zafrul added.
He suggested the creation of a viable International Monetary Cooperation Mechanism to ensure financial systems are not only effective and fair, but also consider the unique needs of small, emerging and developing countries equitably.
He noted this has been done before since the 80s with the Plaza Accords to stabilise the US dollar against the Japanese yen and German mark.
More recently, Tengku Zafrul said this was done during the Global Financial Crisis in 2008.
Here, central banks in developed countries had coordinated to prevent financial contagion from spreading to the rest of the world.
“And at the onset of the Covid-19 pandemic, the Global Financial Safety Net provided ample financing to quickly stabilise the global financial markets and contain the economic crisis,” he said.
Tengku Zafrul also noted that existing institutions such as the Bank of International Settlements and International Organisation of Securities Commissions also had an important role in aiding developing countries and emerging economies.
Meanwhile, the finance minister said that despite the alarming fall in the ringgit at the moment, the local currency may return to being based on its economic fundamentals.
This is given the strong demand for its goods and services.
“Yes, the ringgit has contracted against the dollar, but this has been more manageable relative to our regional peers and key trading partners,” he said.
On another matter, he said it was important for Malaysia to ensure its food and energy security needs are secure amid the likely “perfect storm” for the global economy ahead.
“We must insulate our food and energy security from rising production and price volatility amid geopolitical conflicts, supply chain disruptions, deglobalisation movements and climate change,” Tengku Zafrul said.
“Given the heightened global geopolitical tensions, we must seriously consider investing in building a strong Asean-wide supply chain.
“This is especially for food and energy security,” he added.
Tengku Zafrul said this could also be done by capitalising on the Asean trading bloc to invest in building strong Asean supply chains in critical industries.
“If Asean policymakers can coordinate and work closely together, we can identify critical industries where we can scale up and enhance to be a critical part of the global supply chain,” he said.
“This will benefit not just our individual economies, but also serve as a mitigating strategy against calamities such as the pandemic, and geopolitical tensions happening in other parts of the world,” he added.
On Budget 2023, which is to be announced this Friday, Tengku Zafrul quipped that it will be forward-looking and people inclusive.
“It will be pro-investment, development, environment, empowerment; and most importantly, pro-rakyat,” he said.
