The bank said the current valuation of the ringgit is consistent with the country’s economic fundamentals and takes into consideration “developments in our trading partner countries” — an apparent reference to China.Malaysian had insisted previously that it is not working with China on changes to their currency exchange rates, although it had indicated it may be prepared to take action if China moves on its yuan.”Changes in the international and regional financial and economic environment have made it important for Malaysia to have a stable exchange rate against its major trading partners, in particular, the regional countries,” it said.Consequently, the stability of the ringgit exchange rate against the regional currencies will become increasingly important, and stability can best be achieved by maintaining the value of the ringgit against a trade-weighted index of Malaysia’s major trading partners, it said.
The Emirate’s Bank anouncement suggests that even though Kuwait unpegged from the US dollar, what is stopping other countries in the area from unpegging their currencies is only the high price of oil. High inflation is taking a toll. The central banking aspect as well is only a portion of the money in play, with significant amounts of money not in view:
Sometimes, for currency anchors, there is a price to pay – mainly during times when the currency is tied to a weaker currency that gets eroded in the market place. But when the peg is to a robust currency with momentary correction, is the choice of most central banks of the world, is the currency of the world’s largest economy and as yet, the dominant one, then any debate on chopping or changing is perhaps premature and would have to be dealt with, not at the currency level but on the basis of overall trade-weighted export pricing and other geo-political considerations.
While these are only a few examples, it does appear that China’s trading partners will follow their lead, and the ME oil producing nations are being squeezed to do the same unpegging eventually. If oil prices fall, the pressure to unpeg increases.
I wonder what other currencies are in play.