Malaysia Currency, the Ringgit (RM) is under attack again by rogue traders. Former PM Dr Mahathir, who managed to overcome the attack in 1997 is being sought for advice and help to manage the current situation in 2014.

1. http://chedet.cc/?p=1225#comment-117311
Assalamualaikum Tun,
The continued depreciating Ringgit is worrying. However, I disagree the cause of this
depreciation is due to the government actions.
There are many Malaysians who view the value of the Ringgit as an indicator on the state
of the Malaysian economy. This means if the Malaysian economy is strong, the Ringgit
value will appreciate. And when the Malaysian economy is not doing well, the Ringgit value
will depreciate. Malaysians would often compare the Ringgit to the Singapore dollar. Since
the Singapore dollar is stronger than the Ringgit, therefore they assume the Singapore
economy is stronger than the Malaysian economy. In textbook economics, this maybe true,
but it is does not reflect the reality of things.
For example, the US is known to be a failed and bankrupt economy. It has trade deficits
and debts in the trillions. And yet when compared to the Malaysian Ringgit it is stronger?
Does this mean the US economy is better than the Malaysian economy. No.
Similarly, China is the world’s no. 1 growth economy having posted double digit growth for
past 10 years and yet our Ringgit is stronger than the Yuan. Does this mean Malaysian
economy is better than China’s economy. No.
If currencies are an indicator of an country’s economic strength, by right China Yuan would
be the most expensive currency in the world, and the US dollar would be nearing the value
of zero.
The 1997 financial crisis is another reason why currencies value are not an indicator of an
nation economic strength. Pre-1997 has shown the Asian countries posting high growth
rates on average 8%. Suddenly, even there were no major changes in government policies
or anything bad happen to the economy, the Asian currencies took a nose dive in value.
Why?
In the capitalist world, currencies are viewed as a commodity. As with any commodity, its
value is determined by the forces of supply and demand.
Even if an economy is bad, if there is demand for that currency, the value would still
appreciate (Case in point the US dollar). Similar, even if an economy is good, if there is no
demand for that currency, the value would depreciate (case in point Asian currencies).
If demand is primary reason why currency appreciate or depreciate, than those with a lot of
funds would form this demand. The usual suspects would be the US pension funds, fund
managers, and of course the speculators. They would have enough money, in the billions
or trillions to influence the currency’s value.
The term used for this type money is ‘hot money’. They are hot because they can just come
to a particular economy and go the very next day. When they come, they inject in funds in
the billions. Similarly when they leave an economy, they leave in the billions. When they
inject their funds to a particular economy, the currency of that country would appreciate,
when they leave, the currency would depreciate.
Hot money have a destabilizing affect to country’s economy because they cause the value

2. http://chedet.cc/?p=1225#comment-117311
of the currency to appreciate high then drop very low. This is not good for business and
indeed many businesses suffered during the 1997 financial crisis.
During your time in 1997, you introduce to things to remedy this situation, 1) peg the Ringgit
to the USD at RM3.70 and 2) introduced capital controls.
However, now the ringgit has been allowed to float, and there no longer capital controls.
The reason for this is these funds manager would not come to a country if they know their
money will be restricted and they could not easily get back their money. In an effort to gain
these fund managers to invest their hot money in Malaysia, the ringgit was allowed to float
and capital controls were lifted.
Indeed, the funds came pouring to the Malaysian economy in 2013. They invested in our
bonds, money markets and stock market. And so the MYR appreciated. Everyone was
happy as investors come to Malaysia injecting funds in the billions.
The thing is what comes up must come down. Now we see these same funds managers
withdrawing their hot money out of Malaysia and out of other Asian countries as well. Now,
we are suffering because of that. Now we see to Ringgit taking a nose dive.
Having a free economy with no restrictions would attract investors to invest in Malaysia. But
who is going to be answerable when the investors leave and the Ringgit takes a nose dive?
On the other hand, having a peg and capital controls would shelter us for our Ringgit from
taking a nose dive. But the fund managers would not invest in Malaysia due to the
restrictions. They would invest in other Asian countries that have no restrictions.
A key question would be what type of investors do we want to invest in Malaysia? Do we
want short term investors who invest and leave as they wish causing havoc to the
economy? Or do we want long term investors building factories, training our people, etc?
milshah
February 3, 2014 at 11:06 PM