There is a suspicion that the Bank Negara bought a lot of ringgit today by selling the US dollar in order to defend the ringgit from further depreciation vis-a-vis the dollar.
KUALA LUMPUR, Sept 5 (Reuters) – The Malaysian central bank was suspected of selling dollars on Friday, joining counterparts in South Korea, Indonesia and the Philippines in defending their weakening currencies. [Malaysia c.bank sells dlrs to defend ringgit-traders. Reuters via Forbes. September 5 2008]
Why would the Bank Negara want to defend the ringgit?
Is it due to nationalism? Is it an order from Putrajaya? Is it to mitigate the more expensive import priced in dollar? Is it to fight more expensive crude oil due to strengthening dollar vis-a-vis the ringgit? Is it due to too much foreign-denominated debt, just like in what happened in 1997 in Thailand?
The simultaneous sales by four different central banks also raise question.
Is there a collusion by the four banks to stop the US dollar march upward? If the motive is so, would such collusion garner enough influence to affect the US dollar?
4 replies on “[1765] Of why would the Bank Negara defend the ringgit?”
The printing of dollars, mmm – Ben Bernanke is indeed every short seller’s best friend =)
I am of the opinion that the dollar strengthening is unsustainable. The US-centric financial system is only 1/2-way along the IMF’s measure of losses that will arise from the subprime crisis… so there’s definitely more to come. Besides, a weak economy should not have a strong currency. The offsetting argument is that, because the US was the first economy to stumble, Europe and UK are playing catch up on the slowdown of their own respective economies.
However, lets not all forget as well that any bailout of US banks requires dollars!
As for the so-called ‘defense’ of the ringgit, any central bank on a managed float WILL manage the rate of appreciation/depreciation of its currency. “Orders” are irrelevant!!!
btw thought you’d be interested – terrific article:
Central Banking in turbulent times: Challenges for central bankers
http://www.lbo.lk/fullstory.php?nid=1191759006
I don’t believe the dollar turn-around to be real – expecting more bank failures, and there’s also the credit derivatives market (time bomb) – so I place my bets accordingly ;)
And here comes helicopter Ben, wheeeeeeeee