Monday November 22, 2004


Malaysia Ponders Future of Ringgit Peg

Any changes in China's yuan fixed rate regime will not necessarily prompt Malaysia to abandon its ringgit peg to the U.S. dollar, Prime Minister Abdullah Ahmad Badawi said.
"We don't create that kind of linkage," the Malaysian leader was quoted as telling reporters after the Asia-Pacific Economic Cooperation forum concluded in Chile.
"If we decide to make a decision, we will take it on our own. It doesn't have to be linked to the yuan," Abdullah was quoted as saying in a report Monday by the national news agency, Bernama.
The ringgit has been pegged at 3.8 to the dollar since September 1998, when former Prime Minister Mahathir Mohamad imposed capital controls to halt a steep slide during the Asian financial crisis. Other controls were lifted as the economy revived, but the peg has remained.
Speculation intensified last week that Malaysia may abandon the peg in the first half of 2005, as some private economists say the ringgit is undervalued by between 8 percent to 12 percent.
The peg has helped Malaysia's exports become more competitively priced. One of its main competitors for major export markets is China, which allows only limited trading in the yuan within a narrow 0.3 percent band beyond its official rate of 8.2770 yuan per dollar.
Chinese officials have for months been emphasizing their intention to gradually allow more exchange rate flexibility. But they have also stressed their belief that the fragile financial system could not withstand major currency volatility.

Parent site: "Focus on Malaysia"