A Tale of Two Currencies

In 1965, the Singapore dollar and Ringgit Malaysia were on parity i.e. S$1.00=RM1.00. From 1973, Ringgit began its long slide against the Singapore currency. Why was this so? Especially when resource-rich Malaysia should have an appreciating Ringgit rather than the other way around.

The Strengthening SGD vs RM:

US-Singapore
1985 : US$1 = S$2.31
2017 : US$1 = S$1.35 (23 November)

US-Malaysia
1978 : US$1 = RM2.10
2017 : US$1 = RM4.12 (23 November)


The performance of a currency is very much decided by the country’s monetary policy as much as its fiscal position – GDP growth, fiscal budget deficits, foreign reserves, trade surpluses/deficits, debt level and perceived confidence.

Monetary policy is in respect of three areas:

• exchange rate
• capital control and funds management
• money supply and interest rates

No country can control all three levers together – it’s either one or the other.

Singapore focuses on price stability while Malaysia focuses on interest rates for economic growth and price stability. Monetary Authority of Singapore (MAS) prefers the currency to appreciate while Malaysia has an unstated bias towards a weak currency.

At a glance, Malaysia’s fundamentals remain reasonable, except for:

• high household debt;
• fiscal deficits for over 20 years;
• “fluctuating” oil prices;
• perception of low forex reserves;
• political scandals like 1MDB;
• over 40% of short term bonds held by foreigners – which will impact the exchange rate if there is an exodus;
• relative increase in currency in circulation; and
• inflationary effect of GST

That may be the case but the real reasons remain speculative and with speculators. Market makers create the volume and banks are at the heart of the matter as much as Governments.