Currency Policy - Pegging or Managed Float?

Tun Dr. Mahathir,

I am not sure whether Tun will want to listen to me for just a little moment for the feedback on Tun's suggestion to Najib Razak in order for him to make a repeg of Malaysian Ringgit to US Dollar for purpose of counter-checking the high volatility in currency value fluctuations caused mainly by the recent Financial Crisis in the United States. I know Tun is a person of strong character and I do not expect that Tun will change your mind once Tun has made up your firm mind on something. However, it will do Tun no harm by listening to me one more time since as a citizen, the future of Malaysia is also a main concern of mine.

Once bitten twice shy. Tun's suggestion on repegging indicates that Tun may be afraid of the possibility of another round of currency attack. But I am much more inclined to think that Tun has the pressure of interest rate hike in your mind as the major concern. No doubt, repegging Ringgit to US Dollar is one way of compensating for the tension, which has been created through Bank Negara Malaysia's decision on keeping interest rates stable and constant, at a time when Malaysia is under extreme inflationary pressure after the pump price hike and after the American financial turmoil.

Currently, Bank Negara Malaysia (BNM) adopts a Managed Float System (also called dirty float system) in relation to currency policy and only initiates selective market intervention in order to support Ringgit's currency value regime within a permissible range of values. Perhaps Tun is afraid that the governor of BNM, Dr. Zeti Ungku Aziz, may depeg Ringgit from US Dollar in the near future because the conservative economists usually advocate liberalisation in the market control. However, I have good confidence in Dr. Zeti based on the personal integrity she has constituted and I believe she will faithfully stick to the Managed Float System for a period of time which will be long enough to call for comfortability.

Malaysians are most likely going to feel the heat of the weakening US Dollar with our consumer prices rising on the back of high inflation rates triggered by inflationary imports, which will force our importers to stretch the Ringgit Currency to the limit in efforts of making ends meet. The immediate consequence of Malaysia's possible currency de-pegging is most probably going to lead us to a "home-grown inflation", which translates into too much liquidity in the economy due to speculative activities of the hot money and also inaqeduate distribution of goods and services throughout the whole country due to escalating fuel costs and heightened transportation costs.

Quite contrary to Tun's opinion, I personally do not support repegging Ringgit to US Dollar at the moment because I simply think that it is not necessary. Revalue a currency involves with a tremendously high cost. Moreoever, pegging Ringgit to US Dollar will strictly and rigidly set a constraint on instant spontaneity responses to market forces and tend to severely restrict the freedom of formulating a creative monetary policy by BNM in order to react to situations and to spur the economy.

If the main cause of concern really lies in the high inflationary pressure on consumer prices, then Tun perhaps can do a good job by giving advice to the new Finance Minister, Najib Razak, for making a further downward adjustment for the pump price since the Crude price has already come down quite significantly in the last two months. The most critical problem which needs to be tackled immediately is to prevent quick deceleration of the enonomic growth, lest it may further descend from the sluggish situation into deadly stagnance coupled with high inflation, specifically "stagflation". I believe Tun is still infuential to the BN Government therefore please do excercise due care and the best prudence before Tun suggests an economic policy for the implementation by the government.

Onlooker