Time to Unpeg

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.

Comments

[Resurrected]

On a personal level, my budgetting is getting haywrire for my postgrad as the USD continues to weaken.

On a macro level, imported inflation is very real. At my workplace, material prices are going up. Capital expenditure is going up due to currency weakness relative to Euro.

And my chocolates are getting more expensive. Urgh

[Carl Parkes]

One month amost no posts. Guess you are on vacation, laying on the beach in Kota Baru sucking up beers and avoiding the Islamic police.

and so I must drop you blog, cause it's a drag to keep checking but never any new posts. But if you come back to life and do some new stuff, let me know. Otherwise, best of luck Matt..........

Carl

[Ahmed]

Nice blog Mashallah.
Please take a look at mine and link it up here if you think it of benefit.

[jilal]

Sympa comme design salam alaikoum you have a nice blog here keep it up

[Sharazad]

5-minute rest to the planet.

www.mohdsharazad.blogspot.com