Memorandum of Understanding between Bank Negara Malaysia and the Hong Kong Monetary Authority

Bank Negara Malaysia and the Hong Kong Monetary Authority jointly announced today (Thursday) the signing of a Memorandum of Understanding (MOU) for the establishment of a large-value payment-system link between Malaysia and Hong Kong.

The two central banks will establish a link between the Ringgit real time gross settlement system in Malaysia (the RENTAS system) and the US dollar real time gross settlement system in Hong Kong (USD RTGS system). This link, scheduled to be completed in 2006, is the first cross-border payment-versus-payment (PvP) link between two real time gross settlement systems for two different currencies in this region.

The link enables the reduction of foreign exchange (FX) settlement risk through the implementation of a PvP mechanism during Malaysia and Hong Kong business hours. Under this mechanism, the delivery of a currency in a FX trade is conditional upon the delivery of the other currency in the trade, thus reducing the risk of non-delivery of any currency through real time settlement in the same time zone.

The establishment of the payment system link between Bank Negara Malaysia and the Hong Kong Monetary Authority will increase the efficiency and safety of payment systems in Malaysia and in the region, in particular the management of FX settlement risk exposure for the FX transactions involving the US dollar and Malaysian Ringgit (USD/MYR). Besides the reduction of the settlement risk, banks in Malaysia are expected to gain operational efficiency in executing the settlement of the FX transactions and the ability to provide an assurance to their counterparties of their ability to settle FX transactions.

For further enquiries, please contact:

Bank Negara Malaysia
Johari Mesar, Deputy Director (Payment Systems) at (603) 2691 6105

Hong Kong Monetary Authority
Jasmin Fung, Manager (Press), at (852) 2878 8246 or
Kevin Ip, Manager (Press), at (852) 2878 1687

Bank Negara Malaysia
Hong Kong Monetary Authority

8 December 2005