THE government is always involved in the market. Here and everywhere else. So are free marketeers! Adam Smith is wrong: the invisible hand isn’t invisible at all. But this is a discussion for another time.

What causes the ringgit to be where it is? There are many factors, but first let’s settle the fair value question. Notwithstanding views to the contrary, we think there is one. So does the chief economist at Bank Islam, Dr Mohd Afzanizam Abdul Rashid, who has been keeping tabs on the ringgit. He says the ringgit has averaged 3.59 to the US dollar since July 2015 when Malaysia unpegged the currency.

To Afzanizam, the ringgit’s fair value should range between 3.80 and 3.90 to the US dollar. Close to the homegrown solution of pegging the ringgit at 3.80 to the US dollar.

So what determines the value of the ringgit? Simply put, whatever happens within and without. Crude oil prices and the US-China trade war are two external determinants. Consider the trade war. According to Afzanizam, there has been a rise in risk aversion among investors since the trade spat began between the world’s two largest economies.

The effect: rush to buy “safe haven” currencies, such as the US dollar, Swiss franc, Japanese yen and euro. The result: a weakening of the ringgit. Unfortunately, this is one lever Malaysia can’t pull or push. It must look at what is within its control. Like cost of living issues.

Take the case of agriculture products. From the farm gate to fork, there are far too many players, especially the middlemen, who make agricultural product prices prohibitive. Business malpractices, such as hoarding, price manipulation and cartels, make the bad situation worse.

Carmelo De Ferlito of the Institute for Democracy and Economic Affairs says Malaysia can do a number of things that may cause the appreciation of the ringgit. Admitting the possibility of pure speculation in the ringgit, he says currency transactions are largely influenced by the “mood” created by economic fundamentals and other factors.

The market may dictate, but the nation must decide. With or without a ringgit peg. If we have to do it, we should go ahead.

https://www.nst.com.my/opinion/leaders/2019/12/544489/nst-leader-appreciating-ringgit
Please follow and like us:
error

LEAVE A REPLY

Please enter your comment!
Please enter your name here