Unpegging of the Ringgit

[__earth]

What do you think? should ringgit be unpegged?

I'll give out my opinion after im done with the exam.

[__earth]

What do you think? should ringgit be unpegged?

I'll give out my opinion after im done with the exam.

[jiinjoo]

No, we shouldn't unpeg it. Yet or at all. I'll wait for your opinion after your exams and then tell you why :P

[jiinjoo]

No, we shouldn't unpeg it. Yet or at all. I'll wait for your opinion after your exams and then tell you why :P

[el_empty]

i say we appreciate it a little bit. i'll wait til after my exams to tell you why.

[el_empty]

i say we appreciate it a little bit. i'll wait til after my exams to tell you why.

[masterof_none]

haha, I feel itchy to write. but, like the rest of us, I'll wait till I finish my exam too.

[masterof_none]

haha, I feel itchy to write. but, like the rest of us, I'll wait till I finish my exam too.

[qedx]

grrr go do your exams instead of spamming :P

[qedx]

grrr go do your exams instead of spamming :P

[chenchow]

I think the pegging of Ringgit at least will give the entrepreneurs, businessmen, and of course we all students a stability of how much the actual cost we are to pay after conversion. This is especially so, for those whose parents are paying the tuition fee and living cost.

I still remember a friend of mine who is currently studying medicine in Australia. When she budgeted her study expenses, it was when the exchange rate was RM2 - A$1 . And after a year plus I believe, when it was the time for her to go studying in Australia, the exchange rate has changed to RM3 - A$1. That means her cost in Malaysian Ringgit has increased by 50% and that is a very big sum.

I am sure those who are in Australia or UK will be able to appreciate the pegging.

One thing I would suggest is that the pegging could be made into a basket pegging, where our Ringgit will be pegged based on say our trade % of our top 5 or top 10 trade partners. So, our Ringgit pegging will be based on a weighted average of USD, Pound, Euro, Australian Dollar, Singapore Dollar, Yen etc... I believe this will give a more all-round stability to our currency.

That's just my take from a non-economist...

[chenchow]

I think the pegging of Ringgit at least will give the entrepreneurs, businessmen, and of course we all students a stability of how much the actual cost we are to pay after conversion. This is especially so, for those whose parents are paying the tuition fee and living cost.

I still remember a friend of mine who is currently studying medicine in Australia. When she budgeted her study expenses, it was when the exchange rate was RM2 - A$1 . And after a year plus I believe, when it was the time for her to go studying in Australia, the exchange rate has changed to RM3 - A$1. That means her cost in Malaysian Ringgit has increased by 50% and that is a very big sum.

I am sure those who are in Australia or UK will be able to appreciate the pegging.

One thing I would suggest is that the pegging could be made into a basket pegging, where our Ringgit will be pegged based on say our trade % of our top 5 or top 10 trade partners. So, our Ringgit pegging will be based on a weighted average of USD, Pound, Euro, Australian Dollar, Singapore Dollar, Yen etc... I believe this will give a more all-round stability to our currency.

That's just my take from a non-economist...

[topdog]

chenchow has no exam?
:D

[topdog]

chenchow has no exam?
:D

[__earth]

My opinion. I'll break it up into the short run and into the long run.

In the short run, i believe the ringgit should be pegged. Reason is, for the past six months, the USD has consistently growing weaker against the Euro and the Yen. A weaker real exchange rate will make foreign goods expensive while domestic products cheap.

This makes domestic products to be competitive because of its lower price. in a way, it increases trade surplus or reduces trade deficits.

While the above effect happens to the USD, the Ringgit is pegged against the US and thus, the same thing affect the Ringgit.

In the long run however, expensive foreign goods will hurt import and certain industries that depends on import.

Furthermore, Malaysia is trading with other countries. A pegged Ringgit simply implies pegging the Ringgit against the USD, not against every currency. Though the exchange rate to the USD will stay the same, the same case is not true with the Euro, Yen, Sporean Dollar, Aussie Dollar etc. And import come not just from the US. It comes from other part of the world.

If the USD goes down by some more, Ringgit should be floated or risk seeing some industries reduces its size.

Plus, as students in the US, we are not feeling the heat simply because of the pegged ringgit. Imagine students in Japan, Australia - anywhere where the USD is not used for local transaction. Their cost of living increases simply because the exchange rate is falling down. If these students rely on scholarship from Malaysia (from some entities or parents), the cost of transaction due to the real exchange rate is high.

For the case given by Chenchow, I don't know about the current real life situation but according to theory, the Ringgit is depreciating against other major currency.

Therefore, the Ringgit should be floated in the near future. For the next few months, pegging is still acceptable.

[__earth]

My opinion. I'll break it up into the short run and into the long run.

In the short run, i believe the ringgit should be pegged. Reason is, for the past six months, the USD has consistently growing weaker against the Euro and the Yen. A weaker real exchange rate will make foreign goods expensive while domestic products cheap.

This makes domestic products to be competitive because of its lower price. in a way, it increases trade surplus or reduces trade deficits.

While the above effect happens to the USD, the Ringgit is pegged against the US and thus, the same thing affect the Ringgit.

In the long run however, expensive foreign goods will hurt import and certain industries that depends on import.

Furthermore, Malaysia is trading with other countries. A pegged Ringgit simply implies pegging the Ringgit against the USD, not against every currency. Though the exchange rate to the USD will stay the same, the same case is not true with the Euro, Yen, Sporean Dollar, Aussie Dollar etc. And import come not just from the US. It comes from other part of the world.

If the USD goes down by some more, Ringgit should be floated or risk seeing some industries reduces its size.

Plus, as students in the US, we are not feeling the heat simply because of the pegged ringgit. Imagine students in Japan, Australia - anywhere where the USD is not used for local transaction. Their cost of living increases simply because the exchange rate is falling down. If these students rely on scholarship from Malaysia (from some entities or parents), the cost of transaction due to the real exchange rate is high.

For the case given by Chenchow, I don't know about the current real life situation but according to theory, the Ringgit is depreciating against other major currency.

Therefore, the Ringgit should be floated in the near future. For the next few months, pegging is still acceptable.

[FiAnS]

If I am not mistaken, Ringgit is currently undervalued by 15% against the US dollar. The trade on the other hand, has been fluctuating between -7% to 7 % which is still acceptable. There has been much a debate on this subject matter both nationally and internationally.
In my opinion, Ringgit peg will stay for now since the benefits outweigh the risks. If Malaysia were to decide to unpeg Ringgit, the value of the Ringgit would most certainly rise against the US dollar due to the strength of GDP growth, the positive differential between the Ringgit and US dollar deposit rates and strong external reserves. However, this would affect the competitiveness of Malaysia's exports such as losing price competitiveness to countries such as China.
On the other hand, by continuing pegging the Ringgit, which has helped the coutry thus far, the demand is expected to pick up given the fact that our GDP growth of over 4% last year. Furthermore, Malaysian exports are currently enjoying great sales abroad. Besides that, the pegging should stay due to the uncertainty of the global economic environment and the US bad economy. This is because the fact that Malaysia still depends heavily on the dollar makes unpegging not favorable at the moment.
Then again, I agree with _earth opinion on the long term effect of pegging Ringgit . As it is already considered undervalued, the undervaluation against the US dollar poses a risk of exchange rate misalignment which would be very bad for Malaysia.

[FiAnS]

If I am not mistaken, Ringgit is currently undervalued by 15% against the US dollar. The trade on the other hand, has been fluctuating between -7% to 7 % which is still acceptable. There has been much a debate on this subject matter both nationally and internationally.
In my opinion, Ringgit peg will stay for now since the benefits outweigh the risks. If Malaysia were to decide to unpeg Ringgit, the value of the Ringgit would most certainly rise against the US dollar due to the strength of GDP growth, the positive differential between the Ringgit and US dollar deposit rates and strong external reserves. However, this would affect the competitiveness of Malaysia's exports such as losing price competitiveness to countries such as China.
On the other hand, by continuing pegging the Ringgit, which has helped the coutry thus far, the demand is expected to pick up given the fact that our GDP growth of over 4% last year. Furthermore, Malaysian exports are currently enjoying great sales abroad. Besides that, the pegging should stay due to the uncertainty of the global economic environment and the US bad economy. This is because the fact that Malaysia still depends heavily on the dollar makes unpegging not favorable at the moment.
Then again, I agree with _earth opinion on the long term effect of pegging Ringgit . As it is already considered undervalued, the undervaluation against the US dollar poses a risk of exchange rate misalignment which would be very bad for Malaysia.

[chenchow]

I think with China being one of the largest trading nation in the world and they are also pegged with USD. So, if they are revaluing their RenMinBi, perhaps, we can revalue our Ringgit accordingly, so we will still maintain our cost effective, while getting what we should be getting!

[chenchow]

I think with China being one of the largest trading nation in the world and they are also pegged with USD. So, if they are revaluing their RenMinBi, perhaps, we can revalue our Ringgit accordingly, so we will still maintain our cost effective, while getting what we should be getting!

[Thirdshifter]

So what do you guys think would be the revalued ringgit? is the goverment chose that instead of unpeggin all together.

I'm consedering of buying a lot of ringgit if it's gonna be in the 2.5-2.8 = 1 dollar.

[Thirdshifter]

So what do you guys think would be the revalued ringgit? is the goverment chose that instead of unpeggin all together.

I'm consedering of buying a lot of ringgit if it's gonna be in the 2.5-2.8 = 1 dollar.

[__earth]

The Bank Negara said they are not going to do anything. I'm starting to wonder what Zeti is doing behind her desk.

[__earth]

The Bank Negara said they are not going to do anything. I'm starting to wonder what Zeti is doing behind her desk.

[Thirdshifter]

The Bank Negara said they are not going to do anything. I'm starting to wonder what Zeti is doing behind her desk.

after a little googling and researching, i don;t think re-pegging the ringgit would help Malaysia in the long or the short term.

The greenback is expected to bounce back later this year. I think the current trend between Us vs. Euro is the main reason the re-peggin issue was brought up.

I think Euro union wants the Euro to be leveled with The greenback but on the other hand Japanese doesn't want the Yen to be too strong agaisnt dollar..

dilemma dilemma.. i'm also in a dilemma. What ever it is, i'm making a handsome profit from buying AU $. About 22% gain so far (18 months)

So i'm going literally nuts.. buy ringgit or not!! if only i had some insider in bank negara .. hihihi

[Thirdshifter]

The Bank Negara said they are not going to do anything. I'm starting to wonder what Zeti is doing behind her desk.

after a little googling and researching, i don;t think re-pegging the ringgit would help Malaysia in the long or the short term.

The greenback is expected to bounce back later this year. I think the current trend between Us vs. Euro is the main reason the re-peggin issue was brought up.

I think Euro union wants the Euro to be leveled with The greenback but on the other hand Japanese doesn't want the Yen to be too strong agaisnt dollar..

dilemma dilemma.. i'm also in a dilemma. What ever it is, i'm making a handsome profit from buying AU $. About 22% gain so far (18 months)

So i'm going literally nuts.. buy ringgit or not!! if only i had some insider in bank negara .. hihihi

The Bank Negara said they are not going to do anything. I'm starting to wonder what Zeti is doing behind her desk.

Well, you know, Dr. Zeti needs to sign every note, not an easy job considering we spend so much money!

OK jokes aside, the central bank loses control of monetary policy of a country when it pegs the currency to some other currency (say the US dollar). That means the interest rates in Malaysia will remain relatively low (since the US is not increasing its rates anytime soon).

Ringgit-USD peg
I and many economist think that a long-term peg (like what Malaysia is doing) is a bad idea. Arguments like stability for business is baseless since business can hedge their positions by buying/selling ringgit/USD in the future.

Why is a long-term peg bad? Simple answer, market forces are simply too strong for a government to control. Argentina, for example, has maintain a long-term peg with the USD, and in fact is it consitutionally illegal to remove the peg. Look at the country at the moment, it's an economic chaos. In fact, nearly all countries that maintain a peg dives into economic troubles after some period of time.

Having said that, what are the reasons that a peg is a bad idea? No one, not even a government, nor a Noble-prize winning economist do have the sophistication to predict the "right" exchange price.

And even if you they hypothetically are able to determine the price correctly, governments are often lured (for political reasons) to print more money that the peg allows. Hey, after all if you can print money, why not do so?

For all these reasons, I am afraid if Malaysia does not release its peg in the near future, the economic outlook may not be too bright.

The Bank Negara said they are not going to do anything. I'm starting to wonder what Zeti is doing behind her desk.

Well, you know, Dr. Zeti needs to sign every note, not an easy job considering we spend so much money!

OK jokes aside, the central bank loses control of monetary policy of a country when it pegs the currency to some other currency (say the US dollar). That means the interest rates in Malaysia will remain relatively low (since the US is not increasing its rates anytime soon).

Ringgit-USD peg
I and many economist think that a long-term peg (like what Malaysia is doing) is a bad idea. Arguments like stability for business is baseless since business can hedge their positions by buying/selling ringgit/USD in the future.

Why is a long-term peg bad? Simple answer, market forces are simply too strong for a government to control. Argentina, for example, has maintain a long-term peg with the USD, and in fact is it consitutionally illegal to remove the peg. Look at the country at the moment, it's an economic chaos. In fact, nearly all countries that maintain a peg dives into economic troubles after some period of time.

Having said that, what are the reasons that a peg is a bad idea? No one, not even a government, nor a Noble-prize winning economist do have the sophistication to predict the "right" exchange price.

And even if you they hypothetically are able to determine the price correctly, governments are often lured (for political reasons) to print more money that the peg allows. Hey, after all if you can print money, why not do so?

For all these reasons, I am afraid if Malaysia does not release its peg in the near future, the economic outlook may not be too bright.

[tmnt007]

who/what controls the foreign exchange rates of the world please?

[__earth]

who/what controls the foreign exchange rates of the world please?

indirectly, the central bank/monetary authority of each country, to say the least.

that's not entirely true. actually it is currency traders that control the value of the currency (unless the currency, like the ringgit, is pegged). these traders trade currencies akin to brokers trading stocks (in the stock market).

central banks do get invovled in the trading of currency too, with the main purpose (theoretically) to stabilize the currency. However, sometimes they can get entangled with speculation activities -- for example BNM speculated and loss heavily in the pound sterling in the 1990s. Knowing this, it's quite ironic for Dr. M to criticize currency speculators for BNM, under his watch, was invovled in currency speculation too.

[masterof_none]

central banks do get invovled in the trading of currency too, with the main purpose (theoretically) to stabilize the currency. However, sometimes they can get entangled with speculation activities -- for example BNM speculated and loss heavily in the pound sterling in the 1990s. Knowing this, it's quite ironic for Dr. M to criticize currency speculators for BNM, under his watch, was invovled in currency speculation too.

To a certain extent, it's true that the BNM is at the same time a speculator. But I think what matter is the magnitude. Soros pretty much (according to Dr M) crippled the Thai's Baht that brought ripples to the entire region. However, BNM's loss, I believe hardly brought any changes in the british currency.

Thus, I think the Bretton Woods is still a good (if not the best) alternative to the volatile currency market. In fact, that's what Dr M advocated soon after 1997 crisis. In addition, he also proposed the Dinar Emas, a Muslim countries financial blocs that , to my understanding, follows the same idea like the Bretton Woods. Dr M thinks that gold is stable and hence, minimize the risk of speculation.
Any opinion?

[jiinjoo]

That's so random - Bretton Woods - mind explaining in further details? The website is too long for me to digest...

And I realized that I've never expressed anything since I waited for my exams to finish in February :) Anyway, most points has been said already, long term peg bad coz gov shouldn't shield away everything etc. so I shall not repeat. Note that China's way of pegging is different from us. What China does is to buy US bonds in large quantities, thus reducing the demand for Yuan and increasing the demand for USD (hope I understand this correctly), whereas M'sia pegging is literally take the RM of the currency markets.

To complete the story about "who controls the exchange rate", I'd say machines! Machines are highly utilized these days to make sure that the market demand and supply are measured accurately. I.e. the very moment you can buy 1.5 Canadian Dollars with 1 USD in New York, but you can sell 1 USD in Toronto for 1.6 Canadian Dollars, machines monitoring these market would pick up these discrepencies and trade to their advantage, reaping a profit, lowering the price of USD in Toronto and increasing the price of USD in New York wrt to CND.

[el_empty]

wasn't bretton woods an agreement that led to an international currency market in the first place?

drM had good intentions when he proposed the dinar emas. but another gold standard is the wrong way to go as it does not reflect the real value of currency. its face value in fact will be artificial and will result in even more international currency crises and other contagion effects like perhaps a new and faux price of gold due to hording and demand.

Soros pretty much (according to Dr M) crippled the Thai's Baht that brought ripples to the entire region

i disagree. soros did not cripple the baht and the region. it's our own lack of market fundamentals that brought us to our own demise. the pre 1997 times was a huge bubble marked with corruption (no not just malaysia), weak and unreliable financial institutions, and irrational exuberance. what soros did was just to be human and react rationally.

to bring it back to context, the lesson to be learnt is that we have to fix our financial structures FAST. and not only keeping it at that, but also to fortify it with transparency and accountability, which we still shamefully lack. then only can we make decisions about pegs and speculation. with transparency what's there to speculate?

[__earth]

FX Asia: Malaysia May Not Await China To Unpeg Ringgit

By Monica Houston-Waesch
A Dow Jones Newswires Column

KUALA LUMPUR (Dow Jones)--Malaysia may let the pegged ringgit rise against the dollar in the first half of next year, economists increasingly predict, as expectations grow that China may loosen its currency.

http://sg.biz.yahoo.com/041117/15/3ol2p.html

better get out of the dollar before its too late.

[KobeBryant]

wah...what a nice discussion here...i am very interested in this issue n in fact, i have been keeping quite a number of newspaper
cutting about the currency exchange.

i haven't study econs...just keep abreast of the business newws---this is how i think...currency exchange can be discussed in a lot of aspects such as import-export, interest rates, foreign's investment , central bank's foreign reserve etc....it is a big knowledge

i have consulted lots of my working relatives about the issue to gain more insights...

ermm....can i ask u all some questions

central's bank foreign reserve
most of the banks use USD as the currency of their reserve?
china doesn't use RMB...

my father said, b4 this china closed the market to itself only, that's y the currency is of no value to investors...but no the case today

right now....Japan, have so much foreign reserves that it cannot let USD to depreciate....so it needs to buy US bonds/assets/warrants to prop up USD ???


USD has consistently growing weaker against the Euro and the Yen. A weaker real exchange rate will make foreign goods expensive while domestic products cheap.

This makes domestic products to be competitive because of its lower price. in a way, it increases trade surplus or reduces trade deficits.

this is what US is doing now...
US let its currency depreciate purposely ???
economists say if USD continues to depreciate, it will create a havoc..can anybody explain it in detail?

RM is pegged with USD... what will happen if US raises interest rates? what is the impact to countries that peg their money with USD?

what is the purpose of raising interest rates, to ur understanding?
US does that to attract investors to bring money to US?

now, ppl keeps buying RMB, it will give the pressure to curency to appreciate?? when investors buy lots of the currency ( by FDI? do business in china?) the value will increase ??

korea...its exchange rates with USD goes up to a 7-year high...
korea allows that , because its export is not that much compared to its import ???

[__earth]

You have a good understanding of what is going on.

right now....Japan, have so much foreign reserves that it cannot let USD to depreciate....so it needs to buy US bonds/assets/warrants to prop up USD ???

Yup. But so do other countries like Saudi Arabia. If the USD continues to depreciate, a lot of countries will find their real wealth goes down without any good reason. And losing wealth is not fun.

But I am not so sure about the foreigners needing to buy US assets. But with their currency appreciating, they do want to get more of US assets.

this is what US is doing now...
US let its currency depreciate purposely ???
economists say if USD continues to depreciate, it will create a havoc..can anybody explain it in detail?

The havoc is the reduction of wealth. Also, it makes import more expensive and in some sense, the US consumers will be unable to consume foreign goods the way they used to be. Other than that, it benefits the US exporters (and usually, they are politically strong).

another one, since the US is a net importer and oil is a large part of the economy, the issue of inflation is as real as anything.

RM is pegged with USD... what will happen if US raises interest rates? what is the impact to countries that peg their money with USD?

what is the purpose of raising interest rates, to ur understanding?
US does that to attract investors to bring money to US?

Actually, raising the interest rate will discourage investment. Higher interest rate dampens borrowing. This is why you see the Fed and everybody else is reluctant to raise the interest rate. The economy is still recovering from the last recession. But it does discourage capital flowing out of the dollar since it is more attractive to not sell the dollar. At the same time, higher interest rate (real) leads to higher real exchange rate, w.r.t. to the US.

About the countries that pegged their currency to the us, the same thing that happens to the US will happen to them.

now, ppl keeps buying RMB, it will give the pressure to curency to appreciate?? when investors buy lots of the currency ( by FDI? do business in china?) the value will increase ??

Yup but the RMB is fixed. The Chinese central bank will not allow it unless it works to their advantage. In this case, the RMB will be undervalued, of which it is right now.

korea...its exchange rates with USD goes up to a 7-year high...
korea allows that , because its export is not that much compared to its import ???

To my knowledge, Korea is engaged in floating exchange rate. It?s not the matter of allowing it or not. It?s just the market in action.

I believe Korea is a net exporter and I think Korea hates this but it can't help it.

Here's a well-written article on exchange rates.

http://www.sims.berkeley.edu/~hal/people/hal/NYTimes/2004-06-03.html

There's also this thing called the "unholy trinity". You can have two of :
1) stable ( fixed ) exchange rates
2) freedom to pursue monetary policy
3) free flow of capital

Malaysia is doing without number 3.