We must not downplay the devaluation of the Ringgit


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We must not downplay the devaluation of the Ringgit
By Zan Azlee

Local headlines have relentlessly focused on the Ringgit’s downward trajectory over the past months.

As I write this, the Ringgit is trading at 4.00 to the Dollar. This is the lowest the currency has been since the last financial crisis we experienced in 1998.

Ordinary Malaysian citizens probably see the decline of the Ringgit as a sign that the country’s economy is not doing so well.

And looking at the current situation, there is no shortage of things they could attribute this to.

Some say ongoing political scandals are causing our currency to decline in value. Many say it is due to the mismanagement of sovereign funds.

Of course, the government is trying to convince everyone that things aren’t all that bad. There are advantages when the Ringgit drops in value.

Firstly, it makes our exports cheaper for countries with stronger currencies.

Secondly, tourists from those countries will find Malaysia a more appealing destination.

The government is right to say that these are all advantages that the country enjoys when the value of the Ringgit drops.

But there are conditions to this.

The gains from rising exports and foreign tourism spending are only felt when a country implements an intentional competitive devaluation of its currency.

And even when a country devalues its currency intentionally, if it isn’t careful, domestic inflation could soar out of control, making things more expensive for its citizens.

Many Malaysians today wouldn’t really feel that big a pinch from the devaluation of the Ringgit because it may not affect their daily spending, on groceries or going for simple meals outside.

The upper class probably feels it more as they would have to start shopping in cheaper cities other than New York or London (sorry… couldn’t help it!).

Getting back to the topic at hand, if nothing is done to control the ringgit’s slide, there won’t be any potential advantages that can be harped on by the government. And soon enough, all Malaysians will start to feel the pinch.

My point is that we need to pay attention to all factors that contribute to the decline of the Ringgit and our economy, be it financial, economical or political.

It is important that we do not downplay the devaluation of the Ringgit at all if we want our country to remain competitive in every sense.

[This article originally appeared at English.AstroAwani.Com]

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