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The Monetary Authority and Bank Negara Malaysia have signed a deal to set up the first cross-border payment-versus-payment link between two real-time gross-settlement systems for two different currencies in this region.
The link will be established next year 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).
The link enables the reduction of foreign exchange settlement risk through the implementation of a payment-versus-payment mechanism during business hours.
Under this mechanism, the delivery of a currency in a foreign exchange 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 move will raise the efficiency and safety of payment systems in Malaysia and in the region, in particular the management of settlement risk exposure for the foreign exchange transactions involving the US dollar and Malaysian ringgit.
Banks in Malaysia are expected to gain operational efficiency in executing the settlement of the foreign exchange transactions and the ability to provide an assurance to their counterparts of their ability to settle these transactions.
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