June 23, 2003 - MANUFACTURERS and exporters should be prepared to acceptpayments in euro, although economists say a widespread switch from the USdollar to euro for trade settlements remains far in the horizon.

Although the European currency now enjoys better exchange value than theweakened greenback, economists say any switch to the euro from the dollarwould depend on whether partners in trade agree to the change.

The economists also do not expect Malaysia to abandon the dollar entirelyas the ringgit value is still pegged to the greenback.

Prime Minister Datuk Seri Dr Mahathir Mohamad recently called on tradersand nations to diversify into using the euro instead of depending solelyon the dollar for international trade settlements, particularly in oil andgas.

He said that it would protect oil producers from volatility of the UScurrency.

Several Asean (Association of South-East Asian Nations) business leadersand corporations have voiced support for the call, including Indonesia’sstate oil company Pertamina which said it was considering switching to theeuro.

MIDF Sisma Securities economist Azrul Azwar Ahmad Tajudin said Malaysiacan dictate the currency for settlements in areas where it enjoys monopolyas a producer, including oil and gas, crude palm oil and rubber.

However the success of any switch would still depend on the willingness ofits trade partners to accept the euro.

“It may not make much sense to settle trade payments in euro if the US andother trading partners do not accept euro as the medium of exchange, saidAzrul Azwar.

The first-quarter statistics indicate that the US is still Malaysia’slargest trading partner with 16.1 per cent of total bilateral trade ascompared to the 12.6 per cent trade with the EU.

Another economist said central banks worldwide are still holding more USdollars than euros as reserves although they are slowly increasing theshare of their euro portfolio.

Although a complete shift to the euro is seen as uncompetitive currently,economists said that increased intra-Asian trade will help open windows ofopportunities in reducing the reliance on the greenback as Asian countriescan opt to settle payment in the currency of one of the countries involvedin the dealings.

While the greenback has facilitated trade over the last few decades, ithas been made volatile by the lacklustre US economy and politicalpriorities against the current backdrop of a strong euro.