The former prime minister’s repeated calls for a fixing of the ringgit’s value has set him on a collision course with Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz, one of Asia’s top central bankers, who has favoured a managed float regime for the ringgit that is supported by underlying economic fundamentals.
Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah also said earlier this month that the current system of a managed ringgit float is more effective than having the ringgit pegged.
Dr Mahathir (picture) said that the ringgit’s value should be fixed according to competitor exchange rates in order to maintain competitiveness and enable cost savings to be tracked.
“When to fix the new rate is dependent on the behaviour of the currency of our competitors,” he said in his blog today. “When we announce the new rate we can determine the gain or loss by the importers, wholesalers and retailers. The prices can then be calculated and any gain passed on to the consumers.”
He added that this presented an advantage of a controlled currency over a managed free float.
“It is strange that at the time when many countries have decided on currency control Malaysia is thinking of freeing the Ringgit from any control,” he concluded.
Bank Negara maintains a policy of a managed float system and said it intervenes only to ensure orderly market conditions.
It also says that it does not set targets but will allow fundamentals to determine the value of the Malaysian currency over the long term.
The central bank governor has repeatedly said that exporters should not rely on a cheap ringgit in order to gain competitiveness.
“We do not target any specific level for the ringgit,” Zeti said in a press conference recently. “We will not try to influence underlying trends.”
Figures provided by Bank Negara show that the ringgit appreciated against the US dollar, Chinese reminbi and British pound in the third quarter of this year but fell against the Japanese yen, Singapore dollar, Thai baht, Korean won, Euro and Australian dollar.
Supporters of a cheap currency say it will help boost exports but critics say a lower currency can cause imported inflation and does not incentivise industries to become more efficient and productive.
In Singapore’s case, it manages its currency in a secret trade weighted band formulated from an undisclosed basket of currencies.
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