Steven Sim: No plans to peg ringgit, situation unlike 1998 Asian Financial Crisis

Steven Sim: No plans to peg ringgit, situation unlike 1998 Asian Financial Crisis

Steven Sim: No plans to peg ringgit, situation unlike 1998 Asian Financial Crisis

KUALA LUMPUR, Nov 1 — The government has no plans to implement ringgit pegging and accompanying measures like exchange rate controls that were done when the country faced the 1998 Asian Financial Crisis (AFC) as it is not the right solution for the challenges faced today.

Deputy Finance Minister II Steven Sim said this is due to Malaysia’s economy and financial system that are in a better position today to face the volatility of the global financial market and exchange rate movements.

“Secondly, Malaysia will lose its freedom of monitoring policy and will have to follow the interest rates of the currency that pegs the ringgit, for example, if the ringgit is pegged to the US dollar, we will also have to raise interest rates in line with the interest rates in the US and this action will certainly put more financial pressure on the people.



“Thirdly, in order to maintain the peg we need large international reserves otherwise we will have to re-introduce capital control measures to prevent and overcome speculative pressure on the ringgit and if these capital control measures are introduced now, the negative impact on investor confidence will involve very high costs and may affect capital flow because Malaysia has a much larger capital market today compared to 1998,” Sim told the Parliament today during the Question and Answer Time.

Sim was responding to Bersatu’s Machang MP Wan Ahmad Fayhsal Wan Ahmad Kamal who asked if the government has plans to peg the ringgit at a certain value as it was done in 1999, since the Ringgit value is currently lower compared to the US dollar.

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At the height of the AFC in 1998, the first Tun Dr Mahathir Mohamad administration pegged the value of the ringgit to RM3.80 to the US dollar in an effort to isolate the Malaysian economy from the financial instability sweeping over the region at the time.

This was introduced along with several other capital control measures to limit the outflow of so-called “hot money” at the time.



The peg was eventually lifted in 2005 and replaced with a managed float system.

In September, Dr Mahathir had again proposed for Malaysia to reintroduce the currency peg, saying the move worked then.

The former PM argued that Malaysia should not refuse to fix the ringgit’s value simply because it was against international norms, saying this refusal was effectively helping forex traders profit off the depreciation of the local currency.


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While he conceded that his proposal would lead to problems, he countered by saying some of the experts who had helped Malaysia navigate the precious currency peg were “still around”.

“Therefore, as the central bank responsible for the stability of the financial and currency markets, BNM will ensure that the adjustment of the ringgit is in an orderly state so that it is not volatile in order to deal with the risk of sudden movements in the exchange value of the ringgit against the US dollar.

“The government through BNM will continue to manage risks from domestic and external developments and be prepared to use its operational policy instruments to ensure a more orderly market situation,” Sim added.

When responding to a supplementary question by the Machang MP regarding the impact of the country’s debts, Sim said the country’s exposure to the US dollar is not large.

“It is still under control, most of our debt is in the domestic market, to be denominated in the domestic market,” he said.

In May, BNM said the sharp depreciation of the ringgit versus the US dollar was in line with the largest decline of regional currencies against the green bank. It said the ringgit’s decline was due to developments in the US and Europe that caused investors to flock to the dollar as a safe haven.

Steven Sim: No plans to peg ringgit, situation unlike 1998 Asian Financial Crisis

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