This article originally appeared on vulcanpost.com.
Malaysia’s ringgit has slid past 4.0 against US dollar in the worst currency crash seen for the first time in 17 years.
Heightened by worsening global outlook, devaluation of China’s yuan, political scandals linked to the Prime Minister, plus the falling crude oil prices, the four horsemen of the apocalypse have assembled for the ringgit’s troubled days ahead.
The main culprit however, is the decreasing oil prices which destabilises the oil-exporting economy. The continuous ringgit slide is alarmingly disquieting.
How would the decrease of ringgit’s value affect you as a consumer? Are we the generation bound to experience the comeback of ringgit meltdown during 1997-1998 Asian financial crisis?
1) Increased price of goods and services
If you have mixed feelings about Goods and Service Tax (GST) imposed on the things you love, a weak ringgit will worsen your buying mood. Prepare to tighten your belt as the increased cost of imported goods will be reflected on the price tags. The cost of imported components utilised by domestic producers will also contribute to the impact. This results in us expressing great disdain over the price hike of imported fresh goods (vegetables, fruits, etc.) because as Malaysians, we live to makan.
When the ringgit experiences depreciation, the cost of imported goods will increase as mentioned earlier. The use of raw materials from foreign markets will also contribute to inflation caused by imported goods. As a result, domestic producers are forced to sell their goods on a higher price to sustain the increased cost of operation.
For instance, automobile companies which utilise imported components in their vehicles would feel the impact of weak ringgit and market the finished vehicles on a higher price to the end consumers.
3) Costly oversea travel
The poor exchange rate for ringgit equates to a lesser value it carries when you convert it to foreign currencies. You should revise your plans to study or travel abroad as the expenses in your budget is expected to increase on a consequential proportion. Until the Malaysia’s ringgit has fully recovered, join the Cuti-cuti Malaysia bandwagon for cheaper travel. Why don’t you try holidaying in UK instead? (Ulu Kelang is just nearby, folks!)
4) Reduced purchasing power
When the price of goods and services increase, but your income is not, what do you have left? Answer: A diminished purchasing power.
You have likely felt the pinch after the implementation of GST. With the weakening of the ringgit, the prices of goods and services are expected to increase further. The increased cost of goods does not permit you to spend freely like you used to. As a result, there are lesser things you can buy with your money as your purchasing power is reduced.
5) Prolonged difficult times ahead
Is there light at the end of the tunnel? Has Malaysia’s ringgit seen its better days?
The ringgit’s depreciation is mostly caused by external factors. Followed by the strengthening of US dollar, ringgit is unlikely to fare well against greenback in the present. The falling crude oil prices are beyond the control of the Malaysian government as well. If the plummeting value of ringgit persists and threaten the economy, we may expect the government to impose capital controls to protect the economy.
The 1997-1998 Asian financial crisis forced the former Prime Minister Mahathir Mohamad to fix the ringgit at 3.80 to the dollar as a form of capital control to prevent the country’s economy from going downhill.
One’s man trash is another man’s treasure. This is a fitting description for Malaysia’s ringgit. There are winners and losers entangled in the underperforming ringgit fiasco. A depreciated ringgit is not entirely undesirable for it has its perks as well.
1) Exports growth
A weak ringgit can act as a stimulus to the Malaysian businesses as it has now become more affordable for foreign markets to purchase Malaysian-made goods. The increment of demand for the domestic products will likely generate more profits for the certain businesses such as the manufacturing sector. Export-oriented businesses which market its goods to international markets will find the weak ringgit beneficial as they enjoy higher sales volume. As a whole, the increment in exports for some economic sectors will be observed.
2) Tourism boost
Foreign tourists will benefit from a weaker ringgit as it grants them a higher purchasing power to splurge like a shopaholic. Singaporeans who enjoy a quick getaway to Malaysia would likely be the prime benefiters as ringgit falls to an all-time new low trading around 2.90 to the Sing dollar (take note, fellow Singaporeans!). If you are a foreigner reading this, there is no better time to visit Malaysia as the weak ringgit gives you more value for your money.
3) Increased foreign investment
The falling ringgit makes investment in Malaysia more welcoming. As such, investors will take advantage of this and strike while the iron is hot.
A weak ringgit will encourage foreigners to invest through foreign direct investment (FDI) and foreign investment portfolio as it is cheaper to operate and buy stocks and bonds in Malaysia respectively. While the effects of capital flow generated by foreign investment portfolio is not immediately felt by the citizens, FDI can generate employment opportunities in the market as multinational companies build new facilities to conduct businesses in the country.
The depreciation of ringgit is boon and bane for the country. Currency fluctuation is a naturally occurring process of the economy. In a state of perpetual flux, the economy is not immune to global trends triggered by a chain of events elsewhere in the world. Our country is not immune to this phenomenon; however, this is a challenge we can overcome. While surely things will get better in time, it may be wise to assess your current financial security.
If you have been told “Ask not what your country can do for you but ask what you can do for the country”, it is time to turn things around. Challenging times for the economy test both the country and citizens but only one party is empowered to exert control on the currency. We can only quietly wait and see whether our country leader is more concerned on advancing his political agenda or to focus on alleviating the financial burden we carry.