Datuk Muhammad bin Ibrahim, Governor of Bank Negra Malaysia, spoke yesterday about the poor performance of the Malaysian ringgit. In his speech at the MIER 30th Anniversary Dinner, held in the Dorsett Grand Hotel, in Subang, the central bank head explained that while the international monetary system has allowed the free flow of capital and goods, emerging economies have suffered as a result of “policy adjustments in major economies.”
“The initial hint of tapering by the Federal Reserve in May 2013 resulted in large reversal of capital flows and exchange rate over-shooting in emerging economies.”In particular, Governor Ibrahim tied the lackluster performance of the ringgit to excessive volatility in the global financial system, which he claims is caused by fears over “monetary policy normalisation by the Federal Reserve.”
In his speech, the Governor stated that the “frequency of banking and currency crises” has increased substantially following the end of the Bretton Woods system of monetary management.
The head of the Malaysian central bank also took issue with the perception that ringgit weakness is a direct result of Malaysia’s reliance on commodities and oil.
Datuk Muhammad bin Ibrahim explained:
“Despite Malaysia’s lower dependency on commodities, the magnitude of ringgit depreciation is disproportionately higher and is even comparable to the currencies of countries that rely more heavily on commodities, such as Australia and Norway.”Per the governor’s comments, Malaysian commodity exports added up to 19% last year, with oil and gas making up 11 percent. The entire energy industry is responsible for 22% of the Malaysian government’s revenues. As far the Datuk Muhammad bin Ibrahim is concerned, the size of the industry could not be the sole reason for the slide of the ringgit:
To combat ringgit volatility, the central bank head said that maintaining adequate currency reserves, focusing on fundamentals, and minimising exposure to foreign debt would be necessary.
As of September 15, 2016, the Malaysian central bank has RM392.5 billion ($97.7 billion) in foreign currency reserves; $89.7 billion in cash; $0.8 billion in International Monetary Fund reserves; Special Drawing Rights (SDRs) wmoorth $1.1 billion; gold valued at $1.5 billion; other assets valued at $4.6 billion.