The value of ringgit and the moronic justification we provide – TK Chua

Everyone has an opinion on the value of ringgit. More often than not, that opinion would depend on one’s political leaning.

Supporters of the existing regime would say cheaper ringgit is good for the economy – enhance export competitiveness, promote tourism, and encourage more consumption and investment at home.

On the other hand, those who are not happy with the government would argue that the weakened ringgit would further erode confidence, cause inflation, encourage capital flight, and make imports, education and consumption abroad more expensive for Malaysians.

Most of the arguments presented thus far are actually quite meaningless. They are full of political rhetoric but short of economic rationale and logic.

If ringgit depreciation has more benefits than drawbacks, why didn’t we do it sooner than later?

After all, to weaken a currency is certainly easier to accomplish than to maintain or strengthen it, as demonstrated by China recently.

I am no expert in exchange rate determination and I have no idea on the “fair value” of ringgit given our productivity trends, terms of trade, recent commodity prices, current account trends, money supply, interests rates and capital flows.

But what worries most Malaysians is not ringgit weakness per se. It is the speed of depreciation and its likely impacts on confidence and its consequent disruption on prices, trades and investments.

We know demand and supply determine price, ceteris paribus. The same goes for exchange rate – it is determined by demand and supply of ringgit.

When confidence is undermined, there is now a greater speculative demand for foreign currencies at the expense of ringgit.

When money changers ran out of foreign currencies, what did that tell us?

Surely our transaction and trade demand for foreign currencies can’t change significantly overnight.

When there is heightened speculative demand for foreign currencies, particularly among Malaysians, the value of ringgit would inevitably fall beyond its equilibrium value regardless of long term fundamentals we often boast about.

I think we should stop beating around the bush on ringgit. We should stop putting up false front as some ministers are in the habit of doing it.

They said ringgit depreciation will make export competitive and encourage more tourists coming to Malaysia. But can’t we see we now have to do more (i.e. export more or attract more tourists) just to earn the same amount of foreign exchange?

Can’t we see we have to use more foreign exchange to import the same amount of goods and services?

Can’t we see Singaporeans can now buy lands, houses and other assets in Johor at “half price”?

Just like no commercial banks will be able to meet the withdrawal obligations of all their customers at one go, I believe managing the country’s currency is also the same.

Besides economic fundamentals, it is managing confidence.

The prime minister said, "there is excessive political play and speculation that have resulted in uncertain sentiment towards the country's governance."

I agree there were political play and speculation, but these are the consequences not the causes.

The causes are issues relating to the country’s governance. Resolve these issues and the confidence will return.

Our currency has skipped way before China decided to devalue its currency, which by the way, was done deliberately.

If we have many uncertainties, unanswered questions, duplicities and conflicting signals going on for far too long, I think it is natural for anyone to take some steps to protect themselves.

Is there any surprise if Malaysians with something to spare will take, run and hide away some of their net worth in foreign currencies?

I know we talk about patriotism all the time; we even have patriotic number plates up for sale. But frankly, who is unequivocally patriotic today? The ruling elites?

* TK Chua reads The Malaysian Insider.