[1186] Of the invisible hand conspires to diversify Malaysian export

The mainstream media is celebrating the strengthening of the Malaysian ringgit against the United States dollar. Through the glory days when a dollar cost roughly only 2.5 Malaysian ringgit is something that many long for, I find the jovial mood caused by stronger ringgit is something awkward. I am in the opinion that the media, through the tight leash put on by the government, is manipulating laypersons’ sentiment. These laypersons unfortunately have little economic education and do not understand what stronger ringgit mean. I have discovered that nationalists with little economic background tend to cite a stronger ringgit as a proof of sunny day. But perhaps, the strong ringgit against the dollar might signal stabler sunny days in the long run.

I have mentioned earlier that stronger ringgit relative to the US dollar would hurt Malaysian export to the US; a large portion of Malaysian export goes to the US. This is on top of the slowing electronics demand in the US. With the USD growing weaker, US citizens would consume more of local product and less of imported goods.

The ringgit is growing stronger compared to the dollar. Analysts are betting the ringgit to hit 3.4 for a dollar in the coming months and yet, still convinced the the ringgit is undervalued almost two years after the ringgit was unpegged from 3.8 to a dollar. Yet, against other currency, the ringgit is remarkably weak.

Malaysia is heavily dependent on the US economy. For this very reason, I expect Malaysia to experience economic slowdown this year, in tandem with the trend — albeit increasingly confusing trend at the moment — in the US. This dependency is caused by us putting our eggs in a basket. If a slowdown is to occur as expected, the important lesson Malaysia needs to learn to diversify.

Indeed, with stronger ringgit against the dollar but weak against almost everything else, the invisible hand is conspiring to push Malaysian export towards diversification. Slower export to the US would be cushion by greater export to elsewhere. New and more baskets are available out there.

Weak currency encourages the local export component to grow while stronger currency encourages the import component. Rationally, given everything else the same, one would expect Malaysian export to start looking into other markets where the ringgit is weak. Some of those places are Australia, India, the United Kingdom and the European Union.

With diversification, we would cushion ourselves from the harsh realities that others face, making globalization a little bit easier to shallow.