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After nearly seven years of being pegged to the US dollar, Bank Negara
WHEN Bank Negara Malaysia (BNM) Governor Tan Sri Zeti Akhtar Aziz turned
up unexpectedly at the Umno General Assembly at the Putra World Centre on
the evening of July 21, it raised eyebrows. After all, she was no
politician and neither does she aspire to be one.
Delegates were puzzled and so were newsmen. Zeti then went in to meet
with Prime Minister Datuk Seri Abdullah Ahmad Badawi, who incidentally,
was preparing for the general assembly dinner. Then, the Prime Minister's
aides hastily arranged for a press conference and rounded up the newsmen.
Expecting an important announcement from the Prime Minister, the
journalists were not disappointed. Just before 8pm, Abdullah, who is also
the Finance Minister, announced that Malaysia was de-pegging the ringgit,
thus ending a near seven-year peg of RM3.80 to the US dollar. The
announcement was brief and to the point, taking no more than a few
minutes.
The decision to de-peg the ringgit was largely prompted by a decision
that day by China to de-peg the yuan from the US dollar. Alerted by a
possible de-peg of the yuan by the People's Bank of China earlier that
day, BNM officials scrambled to put into place a well-planned strategy.
They were waiting for this day.
At 7.00 pm, (Kuala Lumpur and Beijing share a similar time zone) the
People's Bank of China announced that the exchange rate of the US dollar
against the renminbi (RMB) will be adjusted from 8.28 to 8.11 yuan per US
dollar.
For the record, former Prime Minister Tun Dr Mahathir Mohamad was
instrumental in pegging the ringgit to the dollar on Sept 1, 1998 to
thwart speculative attacks on the local currency following the 1997 Asian
market slump.
So, the move to opt for a managed float against a basket of currencies
for the ringgit came as a surprise to the nation, especially after stiff
denials by BNM to re-peg, de-peg or float the ringgit. To be sure, the
central bank's decision would have been largely influenced by China's
move.
The yuan factor
Interestingly, the Chinese central bank did not...