Good grief. The Malaysian ringgit has fallen to levels not seen since the Asian Financial Crisis (AFC). One US dollar will now buy 4.78 Malaysian ringgits compared to 4.36 Malaysian ringgits just one year ago, and 3.3 Malaysian ringgits 10 years ago. In the depths of the AFC in 1988, one dollar could have bought 4.88 Malaysian ringgit.
A 30% depreciation in a country’s currency over a decade is not to be taken lightly. But nor should it be something to lose too much sleep over, either. Currencies fluctuate, and so they should in an open and free market.
The exchange rate should reflect what the market thinks a pair of currencies could be worth after weighing up a number of factors. Some of those factors such as the rate of inflation, economic growth, the trade balance, the budget deficit and interest-rate differentials are tangible. Others such as confidence in a country’s politics can be harder to express numerically. It is more touchy-feely....