Malaysian Ringgit Case Study
The currency of Malaysia are called as Malaysian Ringgit (RM), it is formerly known as the Malaysian Dollar (M$) in 12 June 1967. Prior to this date, the official currency was Dollar Malaya which was also used by Singapore and Brunei. The value of Ringgit was “tried” against the pound sterling at par value of 0.290299 grams of gold. After the Smithsonian Agreement, the pound sterling appreciated due to increase in gold price from US 35dollar to US 38 dollar per ounce. This leads to the increase in value of the Ringgit. When the pounds sterling was floated on 23 June 1972, the Malaysian government was undecided in revaluing the ringgit, but late the government decided to switch to the US dollar instead of the pounds sterling as its ‘official currency’ in the foreign exchange market ( Talib, p. 14 ). Therefore, there is a very risky move to pegged one country’s currency upon another currency. During the oil crisis in 1973, the US dollar became unstable. At the same time, the inflation rate in Malaysia had skyrocketed (Talib, p. 15). Which, forcing the Central Bank to take necessary action to avoid fluctuation of RM, because one of the Central Bank function is to issue monetary policy to safe guard the value of currency. Action taken by Central Bank is to float the money by using “dirty float” principle. Dirty float can also be named as managed float which its principle is the exchange rate can be intervened by the government in the determination of the exchange rate.
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