How MYR has performed after de-peg from USD

Today is 21 July 2008, the 3rd anniversary after Bank Negara Malaysia (the central bank of Malaysia) announced the Ringgit de-peg from US Dollar on 21 July 2005.

To recap, during the the Asian financial crisis in 1997-1998, when the former Prime Minister Mahathir Mohamad announced the impose of capital controls to the country, Malaysia Ringgit was pegged at 3.80 to the US Dollar in September 1998 after plunged by 60%.

The capital control measures were then gradually lifted several years later. Ringgit was de-peg a few hours after China announced the de-peg of Yuan to US Dollar on the same day.

So how has the Ringgit performed now, after 3 years from the date of de-peg?

The graph below shows the foreign exchange (forex) history of Ringgit and Yuan against US Dollar since 21 July 2005. It shows that the appreciation of Yuan is pretty steady, while the appreciation of Ringgit is more fluctuated. We can also notice that the Ringgit depreciated slightly since the recent election held on 8 March 2008 which caused some political instability as the ruling government become weaker in power.



Many people are also concerned about the forex rate with Singapore Dollar, and here is the graph.



Singapore Dollar has appreciated from the bottom of 2.22 in 23 May 2007 all the way to 2.39 in last week closing, and the appreciation rate of Singapore Dollar to US Dollar is all the way faster than Ringgit. This is because Singapore is making use of a faster rise in the Singapore dollar to curb their inflation.

Below is the percentage change of the Ringgit forex rate against some major currencies, between the date of 21 July 2005 and 18 July 2008:

Hong Kong Dollar (HKD): +17.56%
US Dollar (USD): +17.12%
South Korean Won (KRW): +14.71%
Japanese Yen (JPY): +12.62%
Indonesian Rupiah (IDR): +9.72%
New Zealand Dollar (NZD): +5.10%
British Pound (GBP): +2.85%

China Yuan (CNY): -1.55%
Canadian Dollar (CAD): -2.92%
Singapore Dollar (SGD): -4.28%
Russian Ruble (RUB): -4.75%
Thai Baht (THB): -5.75%
Swiss Franc (CHF): -6.26%
Philippine Peso (PHP): -7.00%
Australian Dollar (AUD): -7.79%
Euro (EUR): -9.75%

A simple judgement to the performance of Ringgit is to consider the imports and exports of Malaysia. The best condition is for Ringgit to depreciate against currency of exports-partners (so that Malaysian goods become cheaper to them) and to appreciate against currency of import-partners (so that their goods become cheaper in Malaysia).

Here are the top 8 exports-partners of Malaysia as reported in 2007:

• US 15.6% (RM94.52 billion)
  
• Singapore 14.6% (RM88.51 billion)
  
• Japan 9.1% (RM55.24 billion)
  
• China 8.8% (RM53.04 billion)
  
• Thailand 5.0% (RM29.98 billion)
  
• Hong Kong 4.6% (RM27.97 billion)
• Netherlands 3.9% (RM23.60 billion)
• South Korea 3.8% (RM23.03 billion)
  

And here are the top 8 import-partners of Malaysia as reported in 2007:

• Japan 13.0% (RM65.54 billion)
  
• China 12.9% (RM64.90 billion)
  
• Singapore 11.5% (RM57.96 billion)
  
• US 10.8% (RM54.69 billion)
  
• Taiwan 5.7% (RM28.71 billion)
  
• Thailand 5.3% (RM27.01 billion)
  
• South Korea 4.9% (RM24.93 billion)
  
• Germany 4.6% (RM23.42 billion)
  

Since Malaysia export Market still rely heavily on US, it is not favourable for the Ringgit to appreciate too fast against US Dollar. The depreciation against Singapore Dollar is OK since exports value to them is more than the imports. The appreciation against Japanese Yen is OK too, since imports value from them is more than the exports. However, Ringgit should follow the long-term strategy of slightly ahead of China Yuan, and current situation is unfavourable, since Malaysia imports from China is more than exports.

All in all, so far the Ringgit performance is intact and not too bad.