In case you haven't noticed it, your paying more for petrol and diesel. The typical responses can be found from the man on the street to the blogosphere. While Im not going to debate whether the elimination of subisdies are good or bad, it did get me to thinking on why the Government insists on keeping this ringgit peg.
Getting rid of the ringgit peg will do a couple of things.
It will help slow inflation. Im no economist but I suspect that most of this inflation is imported. While there is a definite trend on the rise of commodity prices the world over, how much of this in Malaysia is due to being infinitely coupled with a falling currency (US Dollar)?
It will restore independent monetary policy. The Msian Govt is not (as much as they'd like to be) independently controlling this economy. By continuing with the Ringgit Peg, they are now limiting their options and have to follow the US policy's for risk of wiping out our stable growing economy.
Example: Let's say the US continues to raise interest rates so that a Fixed Deposit in the US gets more interest than an FD in Malaysia. Where would you put your money? Also remember because of the peg, there is no risk for you to lose your newly generated capital by exchanging it back into Ringgit. What would you do? Of course you'd put your capital into the US. Its safe and you are guaranteed for higher returns. To eliminate this outflow, Bank Negara has to raise rates. (Note: there is one other way to limit this flow and that would be capital controls however those have just been uplifted)
As you can see from the above example, Bank Negara has tied itself to the fate of the US policymakers by continuing with this Ringgit Peg. So where's the independency and removal of the colonial mindset that was preached by this country's leaders for the last 20 years? It's time to undue the peg.
