Can Malaysian Ringgit become a common International currency?

Dear Tun Dr. Mahathir,

Your idea of "promoting the use of local currency (in our context the Malaysian Ringgit) for the international import-export transactions in order to build up market forces to support a country's currency value" certainly sounds great, but it is nothing new to most economics students. In 1987, all my classmates in a course titled "International Trade and Finance" at the university already raised up this question for discussion in the timely case study of 1987 Mexican Pesos Currency Crisis.

Here are some of our findings:
1) If an experimented currency is to take over the predominance of the US Dollar in international market, then the currency host country's Gross Domestic Products (GDP) must be huge enough in order to build up high market demand and thus to strengthen the market competitiveness in order to outbeat the US Dollars. During 1987, a few economists identified that the potential competitors for the US Dollar in the international financial arenas were Deutsche Mark in Euro Dollar Markets and Japanese Yen in Asian Dollar Markets, as opposed to US Dollar in the US Dollar Markets.

2) Deutsche Mark never appeared to be the predominant currency by the end of 20th century mainly because of the political struggle between a few European super-powers such as France, Germany and the Great Britain. The Great Britain initially was reluctant to join the European Union to adopt a common currency called "Euro" in the European Common Market because the British people were afraid that the relatively poor countries such as Italy and Romania would create havoc to the international confidence in the value of Euro. If the loss in confidence would have to make Euro an overly undervalued currency, then the standard of living of the relatively richer British people would be badly jeorpadised due to fast depreciation of the British currency, the Sterling Pound, which would be pegged to the depreciating Euro. The currency depreciation was vehemently perceived by some market analysts to have the effect of causing volatile price fluctuations, high inflation and financial instability to the domestic market, even though one might safely argue that there would not be any disparity in the long run in terms of relative purchasing power parities (PPP). Before 1999, British people were thinking only about their short-term benefits. It was only after the Bristish people had been duly convinced by the result of several years' practical experiment in the adoption of Euro as the common currency of the continental Western Europe, Central Europe and Northern Europe, then the British government decided to peg Sterling Pound to Euro and make Euro an acceptable currency in the Great Britain.

3) Japanese Yen had never been able to become a long-lasting powerful dominant currency even in the Asian Dollar Markets. The reason is quite simple: Japan is basically lack of natural resources that can ensure the long-term sustainability of a moderate growth Japanese economy in a long-term ever-appreciating Yen environment. Of course, there were other reasons which attributed to Japanese Yen's decline in usage for international trade. Bubble economies had already been built up in Japan long since before the outburst of Mexican Pesos Currency Crisis in October 1987. Bubble economies were made possible in Japan because of flourishing export businesses for Japanese car makers. Before 1987, US Dollar had been highly overvalued for a long period of time and thus had brought about the effect of long-term high demand for Japanese imports in America due to the relatively cheaper import prices as compared to made-in-America prices. Before October 1987, the exchange rate was recorded in currency market at the level of about 130 Yen against USD1. After the Mexican Currency Crisis, Yen quickly appreciated to Yen 90 against USD1. A lot of manufacturing plants in Japan had to close down and collapse by mid-year 1988, largely due to sluggish market condition which was caused by lack of international purchase orders as a consequence of expensive Japanese goods in relation to fast appreciation of Yen against US Dollar. The housing and commercial property markets in Japan also could not be spared from the onslaught of the financial crisis after the burst-break of bubble economies in Japan in 1987. Nevertheless, the strengthening Japanese Yen was able to spur the tourism businesses in South-East Asia during 1989-1990. With the rising of Mainland China as the economic super-power, Japanese Yen then faded gradually from the scene of peak currency trade season and had no longer been perceived as the single predominant international currency in Asian International Trade Markets. This was because Mainland China had adopted a long-term strategy of choosing to peg PRC Yuan to the US Dollar in the international business and choosing to hold a substantial amount of US Dollar in the combinations of Mainland China's international Reserves. Hong Kong and Taiwan both also kept a substantial portion of their respective international reserves by holding the US Dollar assets such as US Dollar quoted American Sovereign Bonds or Treasury Stocks and also the Special Drawing Rights in the World Bank. US Dollar has been becoming more and more popular than Japanese Yen even in Asia because Japan and Mainland China both have the tremendously huge interest at stake in relation to the exchange rate. Here I have been trying to point out some historical facts about Yen's market performance in order to make it a point that it will not be easy to uphold the value of a currency such as Malaysian Ringgit in a long-term sustainable strong position because all international trade partners will have to take part and exert their market forces in the market in order to determine the exchange rate of a currency. To adopt a fixed exchange rate system, as proposed by Tun, may be deemed viable in the short-term but it will eventually create much more problems such as market inefficiencies and black market and thus make it very costly to sustain such a fixed rate system in the long run.

4) I believe as at todate many nations, including the Islamic oil producing and exporting nations, will still continue to keep their money in terms of US Dollar assets. No doubt, current financial crisis which happens in the US banking and financial insititutions is expected to require some ample time for the capital market to undergo several major market corrections before we can really see sign of sustainable recovery in the market. However, I foresee that more and more foreign direct investments will continue to find a leech way to flow into the US market even during an uncertained time when the market is to go through several rounds of the consolidation stage. This is because several huge economic entities like Mainland China and Japan have conventionally built the foundation of their economic prosperity upon the huge demands created by Americans' imports of Chinese products or Japanese products. The Islamic nations will usually need a safety net for their fragile prosperity since Middle East is always a region perceived to be constantly planted with the seed or the time bomb of international political conflicts. Therefore it is quite likely that the Middle Eastern Islamic nations will continue to adopt a strategy of making long-term investment in the property market, capital market and bond market of the United States in order to safeguard their personal wealth as well as their national wealth under the protective umbrella of the prowess defense system which can be found so far only in such a magnificient militant power as the United States.

5) Malaysia is still very far lagging behind other markets such as Euro market, Renminbi (PRC Yuan) market and US Dollar market by comparisons in terms of the market takers' degree of maturity in relation to transparency and market rule compliances, growth potential for currency appreciation and long-term sustainability of a stable exchange rate. Malaysian economy is also a relatively smaller economy in terms of GDP as compared to the United States, Europe, Mainland China and Japan. Therefore, if Tun suggests that Ringgit shall be adopted by Malaysians as the commonly used international currency for import-export transactions, there will be great obstacles which have to be overcome first. The core issue here is quite simple and straightforward:
How are Malaysian people going to successfully pursuade the international business community to carry along with them Malaysian Ringgit instead of keeping the US Dollar or Euro in their briefcase when they come negotiate for a business transaction with us?

6) If Tun really has the good intent to help promote the economic prosperity of Malaysia, the first-and-foremost important thing for Tun to do now is to stop "bad-mouthing" and stop "opening fire" on the Prime Minister Abdullah Ahmad Badawi for the sake of political stability of Malaysia. It is quite likely that we will continue to see some further weakenings in the exchange rate of Ringgit against other major currencies if the political chaoes are going to persistently continue to deteriorate by its own course. Tun's consistent outpour of anger and frustrations on PM Abdullah will surely contribute nothing to our economy except for further financial turmoil. Tun's attack on PM Abdullah surely will enable Tun to endanger PM Abdullah's power grips. Frankly speaking, Tun has been becoming the substantial devastating factor and constant nuisance which pose the highest threat to the economic security of Malaysia. It is no wonder that some ungrateful people would like to cry that Tun's ruthless attack on the present power-that-be already constitutes good reason and provides sufficient ground for the proposal of detaining Tun by the Police and allowing Tun to be sent to Kamunting Detention Centre for solitary confinement with the invocation of the Internal Security Act (ISA). Therefore, it is advisable for Tun to reconsider and reevaluate Tun's potential benefits or potential danger if Tun has to continue remain as the hardcore critic who will take further onslaught on PM Abdullah's political regime.

7) Forgive me if I have to annoy Tun in any occasion with my straight-forwardness. When my words are hursh to Tun's ear, it is because I basically have very minimum personal financial interest at stake therefore I am more daring to speak freely to the best of my knowledge. I sincerely declare that what I try to analyse here has already been perceived by me as the truth in the context of latest political development and current economic situations. If in any occasion Tun feels that I have made a mistake or have said something wrong, then please feel free to correct me since noone in this world is perfect, except God.

Selamat Berbuka Puasa. Maaf, Zahir dan Batin.

Onlooker