MALAYSIANS who need to exchange their ringgit for currencies of certain major developed economies – be it for holiday, education or business purposes – must have felt the pinch of late, as the ringgit has depreciated quite substantially against several major currencies in recent weeks.
Against the US dollar, for instance, the ringgit had depreciated by about 7.6% year-to-date to 3.31 per unit as of noon yesterday.
Against the British pound, on the other hand, the ringgit’s value had declined 3.7% to 5.16 while against the euro, the ringgit had depreciated by about 8.6% to 4.41 as of noon yesterday.
Such phenomenon, though, is not unique to Malaysia, as currencies of other emerging Asian economies have also shown similar trend of weakness against major-economy currencies in recent weeks.
This trend is mainly attributable to the widespread capital withdrawal from emerging Asian economies back to developed nations – in particular, the United States.
Contagion risk unfounded
Clearly, Asia’s resilience to capital flight has now been put to the test once again, as widespread capital withdrawal from the region sends its financial markets into disarray.
The broad-based sell-off in assets of Asian emerging markets (from equities to bonds) has led to significant decline in the values of the region’s currencies. Particularly hit hard have been India and Indonesia, which have seen their respective currencies, rupee and rupiah, crash over the week.
The highly disruptive capital reversals from the region may have also tempted some punters to draw comparison between the current turbulence and the 1997/98 Asian financial crisis, but economists stress that such comparison is superfluous, as the current phenomenon is nothing like the previous predicament.
“Asia’s economic fundamentals (now) are much stronger than in prior crisis periods (1997/98 and 2008/09) and they are backed by a more stable and better regulated financial sector,” CIMB Equity Research...