Onwards and upwards: Such are the ways of the world

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This article first appeared in Forum, The Edge Malaysia Weekly, on January 23 - 29, 2017.

 

In India, where I visited recently, no one wanted the ringgit. Ditto Thailand. Nor, it seems, does my neighbour, who sold his Honda Blade motorbike in return for euros.

What gives?

On the basis of this flimsy anecdotal evidence and reams of internet reports suggesting some of the same rejections in Jakarta, Melbourne and Auckland, the ringgit is becoming an unwanted currency.

Maybe that’s too harsh. Yet, the repudiation is nonetheless happening. Why?

The Malaysian economy is still growing. We have a diversified set of industries that export all manner of finished goods, resources and agricultural produce all over the world.

Our central bank remains one of the most-respected globally and we have quite a well-regulated and functioning capital market.

And Malaysian workers — unlike, say, the Zimbabweans — remain among the most highly skilled and marketable the world over.

Yet, this is happening.

Maybe it has something to do with the fact that even before the central bank imposed restrictions on the offshore ringgit trade, ours was never a fully convertible currency internationally, which explains why the ringgit is not as widely accepted in New Zealand, the UK or Australia.

But it is clearly worse now. Neighbouring Thailand, of all places, shunning the ringgit too?

The situation could have been worsened by the fact that few people know how to price it, since there appears to be two divergent prices: the offshore futures price and the onshore price, quoted locally.

So when doubt sets in, money changers offer less for the currency being sold — in this case, the ringgit — if and when they choose to accept it.

There is also the confidence issue. Exemplified by 1MDB and the faith (or otherwise) among global investors in the current administration to prudently manage the economy, it follows that the local currency is the first to take the hit.

The ringgit, down by some 4% last year following a 19% swoon in 2015, is Asia’s sick man among regional currencies. It has not gained against the dollar in four years.

At current levels, we are at our lowest ebb since at least the Asian financial crisis in 1998.

Last year, the ringgit had the dubious honour of being the worst-performing currency among the continent’s emerging markets.

Like the US dollar, we used to get more bang for our buck when it came to the baht. We used to receive around 10 baht for every ringgit and when I was in Thailand recently, I only got around 7.9.

Same for the Indian rupee: we previously swapped one ringgit for around 18 rupees. Today — should they choose to accept our currency — the rate is around 13 rupees.

Granted, this is because rupees are in short supply due to demonetisation, but the trend is there.

Unless you are an exporter or market trader, it is hard to be gleeful about the year ahead, ringgit-wise. But that is not to say you cannot get in on the act.

After all, you can always swap US dollars for ringgit and buy Top Glove. For now, at least.

Add to that our not-so-large foreign exchange reserves as well as the difficulty the government faces in pump-priming the economy because of slow fiscal revenue (reference the Inland Revenue Board missing its collection targets for 2016) and that paints a bleak picture for the ringgit in the year ahead.

I have just returned from small trips around the region and another truth has emerged: the mighty greenback remains all powerful.

From the most backward of villages in Laos to the teeming metropolises of India, the US dollar is the one currency accepted by all, bar none.

On the back of an already amazing year for the US currency, there will likely be more gains on the dollar index in the year ahead.

With Donald Trump taking over as the American president amid his promises to bring jobs home and put up walls around the US economy, and strong signs that the US Federal Reserve will continue raising interest rates in 2017, the ringgit will face yet more pressure.

If critics of the government expect this currency weakness to play into voters’ minds — elections are expected to be called this year — they would not be far wrong.

Except for one thing, which is the considerable firepower that the recent Chinese investment affords. The hint came in China Railway’s confidence that its consortium will win the KL-Singapore high speed railway job.

Such as it is with quid pro quo situations, the win will come not from “Beijing’s strong track record and engineering talents”, but much more likely, the largesse of its own administration’s diplomatic efforts.

And when pockets are strapped and liquidity is proffered, outcomes can more or less be predicted. Such are the ways of the world.


Khoo Hsu Chuang is contributing editor at The Edge Malaysia