Ringgit depreciation is not a bad thing

Not many Malaysians know the downsides of a strong currency. Entire industries will become uncompetitive and thousands of jobs will be lost, which could be a major drag on the economy in the long run.

Some may prefer a strong currency, but a weaker currency can bring more financial gains.

The strong ringgit is a headache for exporters. When exporters earn foreign currency through export sales and put it back in ringgit to pay workers, suppliers and investors, a stronger ringgit means that weaker foreign currency buys less ringgit. , means that the company’s profits (measured in Ringgit) will fall. As a result, companies may choose to reduce their exports or raise their selling prices.

A strong ringgit is a boon for foreign companies exporting to Malaysia. Each ringgit earned from export sales will buy more domestic currency when converted back into the exporting company’s domestic currency. The company will get a higher profit than expected.It may then try to increase exports to Malaysia or reduce prices

For overseas Malaysian tourists, a higher ringgit is an advantage. He receives more foreign currency per his ringgit. It’s a good season for traveling abroad.

Foreign tourists buy less ringgit when the currency is strong.

The high ringgit is a curse for Malaysians to invest abroad as they have to convert ringgit into foreign currency for foreign investment. The stronger the ringgit when investors put their foreign currency back into the ringgit, the less income they will make.

A higher ringgit is a boon to foreign investors in Malaysia as it provides higher returns for foreign investors in Malaysia when exchanging their currency to and from their home currency for investment in Malaysia. is.

What this means is that depending on whether the ringgit is strong or weak, three groups of people will experience bliss and three other groups will experience misery.

So any politician who accuses the government of not knowing what to do to “strengthen” the ringgit is barking at the wrong tree.

The government correctly sees ringgit depreciation as not a problem as it will not lead Malaysia to economic crisis.

In this era of financial crisis, it is fashionable to see a country’s currency strengthen, and especially during election fever, this has become somewhat populist.

In economics, if the ringgit suddenly drops 20%, you should be very careful. This is as good a result as a currency devaluation, as it can lead to import inflation in countries that are large importers.

Another thing politicians calling for a stronger ringgit get wrong is that the dollar is going up, not the ringgit going down.

For the United States, the massive sanctions imposed on Russia are not only hurting Russia, but the effects are boomeranging back to Russia in the form of unprecedented high energy and food prices. It is causing a rapid inflation that has not been seen in many years.

This inflation can only be contained by raising interest rates, and the US Federal Reserve is sticking to aggressive rate hikes as inflation remains high.

The Federal Reserve (Fed) has announced a 3rd It is expected to raise rates by 75 basis points in a row.

Is Malaysia the worst affected country in terms of currency depreciation against the US dollar?

As noted by the Finance Minister, the ringgit has fallen 7.5% against the dollar since early 2022, but many currencies in the region and advanced economies have also fallen against the dollar.

Malaysia is actually doing better than Japan, UK and EU.

The ringgit has also appreciated against the currencies of Malaysia’s other trading partners, including Japan, the UK, the EU, New Zealand and South Korea.

Moreover, strong economic fundamentals will determine the ringgit’s stability.

These include GDP growth, which has been rising quarter by quarter since the last quarter of 2021, the unemployment rate of 3.7% in July, the lowest since the start of the Covid-19 pandemic, a healthy rise in the industrial production index, Includes strong wholesale trade. and retail trade, and rising export value.

The country’s inflation rate was also manageable at 2.8% in the first seven months of the year, especially due to price control measures with almost RM80bn of subsidies provided.

The problem of soaring imported food prices predates the depreciation of the ringgit.

In fact, the rising cost of living is an eternal problem. – September 19, 2022.

* Jamari Mohtar reads The Malaysian Insight.

* These are the opinions of the author or publication and do not necessarily represent the views of The Malaysian Insight. Articles may be edited for brevity and clarity. Ringgit depreciation is not a bad thing

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