My opinion on the pegged Ringgit; I’ll break it up into the short run and into the long run.
In the short run, I believe the ringgit should be pegged. Reason is, for the past six months, the USD has consistently been growing weaker against the Euro and the Yen. A weaker real exchange rate will make foreign goods expensive while domestic products cheap. This makes domestic products to be competitive because of its lower price. In a way, it helps to improve the trade balance. While the above effect happens to the USD, the Ringgit is pegged against the US and thus, the same thing affects the Ringgit.
In the long run however, expensive foreign goods will hurt import and certain industries that depend on import. Furthermore, Malaysia is trading with other countries. A pegged Ringgit simply implies pegging the Ringgit against the USD, not against every currency. Though the exchange rate to the USD will stay the same, the same case is not true with the Euro, Japanese Yen, Singaporean Dollar, Aussie Dollar etc. And import come not just from the US. It comes from other part of the world. Ringgit should be floated or risk seeing some industries reduces its size.
Plus, as students in the US, I do not feel the heat of the pegged dollar. After all, the same quantity of Ringgit in almost five years ago is needed to buy the same amount of Dollar today. Yet, imagine the Malaysian students in Japan, Australia – anywhere where the USD is not used for local transaction. Their cost of living increases simply because the exchange rate is falling down. And this increase is sharp. If these students rely on scholarship from Malaysia (from some entities or parents), the cost of transaction due to the real exchange rate is high.
Therefore, if my logic is right and if the USD failed to regain part of its former strength, I believe Ringgit should be floated in the near future. A good trade balance is worthless when local industries suffer. A pegged Ringgit was a good solution in the days immediately after the Asian Financial Crisis, not forever.
Of course, the underlying reason why I support the floatation of Ringgit is the fact that my sister is going to the land of Down Under. I don’t want my parent to be spending too much because of the intangible real exchange rate.
