Southeast Asian currencies to be traded on NYCE

Southeast Asian currencies to be traded on NYCE

SINGAPORE (AFP): Four Southeast Asian currencies are to be traded on the New York Cotton Exchange (NYCE) next month as financial futures contracts, a senior exchange official was reported saying yesterday.

The currencies to be traded against the U.S. dollar under the contracts are the Indonesian rupiah, Malaysian ringgit, Singapore dollar and Thai baht, the exchange's senior vice-president, Charles Minaar, was quoted saying by the Straits Times daily.

But analysts said the central banks of the four countries would not be happy with the NYCE move because the regional currencies could undergo excessive volatility that might destabilize their economies.

"I think the regional central banks are not likely to welcome the move because in their perspective, they still need time to allow their currencies to be insulated against external shocks," Jacqueline Ong, an analyst with British finance house I.D.E.A., told AFP.

Despite its name, about 40 percent of the 125-year-old NYCE's trading volume is in financial futures.

There is no need for the NYCE to seek approval from the regional central banks before trading their currencies.

Minaar told the Straits Times he had held advance talks with the Monetary Authority of Singapore (MAS), the city state's de facto central bank, as a goodwill gesture to keep it informed on the exchange's intentions on trading the regional currencies.

"They are certainly not going to bless it. But to oppose it would be pointless," he said, adding that the upcoming contracts would not encourage excessive speculation in the four currencies.

A currency futures contract is an agreement for sale and purchase of a currency at a pre-determined price but for delivery some time in the future.

Singapore's MAS had in the past argued against the internationalization of the Singapore dollar because large capital flows in and out of the city state would have destabilizing effects and undermine its ability to manage monetary policy through the exchange rate.

But the government announced in October last year it would allow the "gradual internationalization of the Singapore dollar" by allowing foreign stocks to be traded in Singapore dollars under certain conditions.

Minaar said Thailand and Indonesia had been positive when he earlier this year broached the trading of their currencies on the NYCE, while Malaysia had been ambivalent and Singapore not too welcoming.

He said he would not be surprised to see Thai and Indonesian attitudes change, after last week's Thai currency crisis which led to volatility and excess speculation on the other regional currencies as well.

Amid persistent rumors of a devaluation, the Thai baht came under attack last week on growing concern about the slowing Thai economy and rumors of political turmoil within the Thai cabinet.

Singapore's MAS and Thailand's Bank of Thailand (BOT) had jointly intervened in the markets to defend the Thai baht from speculators. Dealers said the Malaysian and Hong Kong central banks were also present to prop up the baht.