12th May 2022 - 2 min read
Tun Dr Mahathir Mohamad has proposed for the government to once again employ a currency peg in addressing the ringgit’s current fluctuation in the foreign exchange market. This method – which was first introduced by the former prime minister during the Asian financial crisis (AFC) back in 1997 – will see the ringgit pegged at RM3.80 to the US dollar (US$).
Tun Dr Mahathir remarked that the ringgit’s fluctuation is caused by the fact that its value is not fixed and guaranteed by the government.
“When we set the value of the ringgit at RM3.80 per US dollar, and we guarantee the supply of US dollars to anyone willing to pay RM3.80 for 1 US dollar, then the value of the ringgit will no longer fluctuate. Even currency traders could not affect the ringgit by dumping it to depress its value,” said Tun Dr Mahathir, adding that it is even more crucial for the ringgit’s value to be stabilised now amidst the ongoing global economic uncertainty.
The former prime minister also stressed that a currency peg at this point in time will also offer some security to businesses that must transact and deal in foreign currency. Without the peg, they could be heavily affected by the severe fluctuation in the ringgit’s value, he said.
Finally, Tun Dr Mahathir acknowledged that while this policy was heavily criticised when it was introduced during the AFC, financial institutions such as the World Bank and International Monetary Fund eventually agreed that it helped to restore the country’s finances. The peg was eventually lifted in 2005.
To note, Malaysia’s currency recently saw a sharp decline of 4.3% in value against the US dollar since March 2022; it is currently trading at about 4.38 to the dollar, as compared to about 4.20 during the start of 2022. This decline is attributed to the likelihood that the US Federal Reserve may soon raise interest rates, in a move to tighten its monetary policy.
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