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.