Malaysia was removed from the US currency surveillance list

[MALAYSIA] Malaysia has been removed from the United States Treasury Department's currency monitoring list. This decision, announced in the latest semi-annual report released on Thursday, November 14, 2024, marks a pivotal moment in Malaysia's economic diplomacy and its standing in international trade.

The US Treasury's currency monitoring list is a crucial tool in the realm of international monetary policy, designed to scrutinize the currency practices of major trading partners. The list focuses on countries with substantial trade surpluses with the United States and those suspected of actively intervening in foreign exchange markets to gain unfair competitive advantages.

The semi-annual report by the US Treasury Department is a comprehensive analysis of the currency practices of major US trading partners. It serves as a barometer for global financial stability and trade competitiveness. The report examines various factors, including bilateral trade surpluses, current account surpluses, and foreign exchange interventions.

Criteria for Inclusion and Enhanced Analysis

Countries on the monitoring list are subject to enhanced scrutiny based on three primary criteria:

• A significant bilateral trade surplus with the United States
• A material current account surplus
• Persistent, one-sided intervention in the foreign exchange market

To merit enhanced analysis, a country must meet at least two of these criteria. The latest report reveals that Japan, South Korea, Taiwan, Vietnam, and Germany have met two of the three criteria, primarily "having a significant bilateral trade surplus with the United States and a material current account surplus".

The Global Context: Who's On the List?

The current US currency monitoring list includes several major economies:

• China
• Japan
• South Korea (newly added)
• Taiwan
• Singapore
• Vietnam
• Germany

Each of these countries has unique economic relationships with the United States and specific reasons for their inclusion on the list.

Spotlight on China

China's presence on the list is particularly noteworthy. The Treasury Department cited China's "failure to publish foreign exchange intervention and broader lack of transparency around key features of its exchange rate mechanism" as reasons for its continued inclusion. Furthermore, the report characterizes China as "an outlier among major economies," highlighting Beijing's "outsized trade imbalance with the United States".

Malaysia's Exit: A Positive Signal

Malaysia's removal from the currency monitoring list is a significant achievement for the country. It reflects positively on Malaysia's currency practices and its efforts to maintain fair and transparent economic policies. This development could potentially lead to increased investor confidence and improved bilateral relations with the United States.

Implications for Malaysia's Economy

The removal from the list could have several positive implications for Malaysia:

Enhanced Economic Credibility: It signals to the global community that Malaysia's currency practices are deemed fair and transparent by US standards.

Potential for Increased Foreign Investment: Improved perception of Malaysia's economic policies could attract more foreign direct investment.

Strengthened Bilateral Relations: This move may pave the way for enhanced economic cooperation between Malaysia and the United States.

Reduced Regulatory Scrutiny: Being off the list means less intense scrutiny of Malaysia's currency practices, potentially reducing compliance costs for businesses engaged in US-Malaysia trade.

The Broader Economic Landscape

While Malaysia celebrates its exit from the list, the report highlights ongoing concerns with other economies. Singapore, for instance, was noted for engaging in "persistent, one-sided foreign exchange intervention". This underscores the complex nature of global economic relations and the delicate balance countries must maintain in their currency practices.

US Treasury's Stance on Global Economic Balance

Treasury Secretary Janet Yellen emphasized the importance of balanced global growth in her statement accompanying the report. "Treasury firmly advocates for our major trading partners to adopt policies that support strong, sustainable, and balanced global growth and reduce excessive external imbalances," Yellen stated.

This stance reflects the US government's commitment to fostering fair trade practices and maintaining global financial stability. It also highlights the ongoing challenges in managing international economic relations in an increasingly interconnected world.

The Role of Currency Practices in Global Trade

The focus on currency practices underscores their critical role in shaping global trade dynamics. Currency valuation can significantly impact a country's export competitiveness and overall economic performance. The US Treasury's monitoring efforts aim to ensure that no country gains an unfair advantage through currency manipulation or opaque exchange rate mechanisms.

Impact on Trade Competitiveness

A country's currency valuation can have profound effects on its trade competitiveness:

An undervalued currency can make exports more attractive, potentially leading to trade surpluses.

Conversely, an overvalued currency can harm export competitiveness and lead to trade deficits.

The US Treasury's vigilance in this area aims to maintain a level playing field in international trade, ensuring that currency practices do not artificially skew trade balances.

Looking Ahead: Future of Global Economic Relations

As the global economy continues to evolve, the importance of transparent and fair currency practices cannot be overstated. Malaysia's removal from the US currency monitoring list serves as a positive example of how countries can work towards aligning their economic policies with international standards.

Challenges and Opportunities

Moving forward, several challenges and opportunities emerge:

Maintaining Transparency: Countries must continue to prioritize transparency in their economic policies to foster trust in the global financial system.

Balancing National Interests and Global Responsibilities: Nations will need to navigate the delicate balance between protecting their economic interests and contributing to global financial stability.

Adapting to Changing Economic Landscapes: As new economic powers emerge and global trade patterns shift, the criteria for currency monitoring may need to evolve.

Embracing Digital Currencies: The rise of digital currencies and their potential impact on foreign exchange markets presents both challenges and opportunities for global economic governance.

Malaysia's removal from the US Treasury's currency monitoring list marks a significant milestone in its economic journey. It reflects positively on the country's currency practices and its commitment to fair and transparent economic policies. As the global economic landscape continues to evolve, this development serves as a reminder of the importance of maintaining balanced and sustainable economic practices.

For Malaysia, this presents an opportunity to build on this positive momentum, potentially attracting more foreign investment and strengthening its position in the global economy. For other nations, it serves as an example of how adherence to transparent and fair economic policies can lead to positive outcomes in international economic relations.

As we move forward, the global community will continue to grapple with the challenges of maintaining fair trade practices and financial stability. The US Treasury's ongoing monitoring efforts will play a crucial role in shaping these discussions and ensuring a level playing field for all participants in the global economy.