KUALA LUMPUR, Sept 12 — Former prime minister Tun Dr Mahathir Mohamad proposed today for Malaysia to reintroduce the currency peg his administration had imposed during the Asian Financial Crisis, saying the move had worked then.
In a post on Facebook, Dr Mahathir said “many people” believed the ringgit to be undervalued, and that its current depreciation was due to currency traders betting against the Malaysian note for profit.
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.
“What I am suggesting is that we should fix the exchange rate as we did during the financial crises of 1997-1998. Remember how the devaluation of the ringgit stopped. Remember how we recovered. And even other countries were able to avoid the depreciation of their currencies being manipulated by the currency traders,” Dr Mahathir said.
He conceded that his proposal would lead to problems, but countered by saying some of the experts who had helped Malaysia navigate the previous currency peg were “still around.”
Dr Mahathir also said Malaysia has the same resources and abilities now to execute such a peg, adding that this would be preferable than raising Malaysian salaries to offset rising prices.
At the height of the AFC in 1998, the first Mahathir 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 in conjunction 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, which Bank Negara Malaysia was to better position Malaysia to respond and benefit from the structural changes occurring in the region and in the international environment.
After a strong recovery earlier in the year, the ringgit has fallen nearly 6 per cent against the US dollar in the year to date and is currently hovering just under the 4.70 mark, down from a high of 4.24 in February.