---
title: "Why Is The Malaysian Ringgit Currency So Weak?"
description: "Why is Malaysia's Ringgit currency weak? Understand the factors behind this trend, from Malaysia's managed float system to global currency shifts."
url: "https://www.mrmoneytv.com/articles/why-is-the-malaysia-ringgit-currency-so-weak/"
category: "Financial News"
author: "Finlit"
published: 2023-07-05
source: "Mr Money TV"
---

# Why Is The Malaysian Ringgit Currency So Weak?

Why is Malaysia's Ringgit currency weak? Understand the factors behind this trend, from Malaysia's managed float system to global currency shifts.

## Key takeaways

- Bank Negara Malaysia manages the ringgit with a managed float system against a trade-weighted basket of currencies, adjusting the OPR (raised to 3.00%) to make the MYR more or less attractive to investors.
- The ringgit's slide is largely a strong-USD story: after the US resolved its debt ceiling crisis and the Fed kept raising rates, investors moved into the USD as a safe haven, pushing the MYR to RM4.65 per USD in the article's figures.
- The SGD held up better (RM3.45 per SGD) because Singapore's MAS manages the exchange rate directly, buying and selling currency and reserves to keep the SGD in a set range, while BNM lets the MYR float more freely.
- Malaysia pegged the ringgit to the USD at 3.80 MYR/USD on 1 September 1998 after the 1997 Asian Financial Crisis, then removed the peg on 21 July 2005 and returned to a managed float.
- Malaysia unpegged to avoid draining its foreign reserves defending a fixed rate; the article points to Hong Kong as a cautionary case of a peg under threat.
- The article argues the float protects Malaysia's reserves and lets its fundamentals grow, citing RM14.6 billion in investment from Texas Instruments.

Year after year, we always hear Malaysians complain about one thing: The Ringgit weakening. We’re constantly comparing the exchange rate between MYR and SGD, MYR and USD or even MYR and THB. So, let’s get to the bottom of it and try to understand why the Ringgit keeps weakening.

## Understanding How Malaysia Manages Its Currency

Before we address why the Malaysian Ringgit is becoming weaker, first, we need to understand how Malaysia manages its currency.

The management of the Malaysian Ringgit (MYR) rests in the hands of [Bank Negara Malaysia](https://www.bnm.gov.my/) (BNM), our country’s central bank. When it comes to managing our currency, BNM has taken the approach of **adjusting** our interest rates or Overnight Policy Rates (**OPR**). This currency policy is known as a **managed float system** against a trade-weighted basket of currencies.

So what is a managed float system? First, we need to understand what a float system is.

In a float system, the value of a currency is allowed to "float" or change freely based on **supply and demand** in the foreign exchange market (FOREX). For example, if currency X offers a high-interest rate or is in a growing economy, investors will be attracted to it and buy more of it, hence, making currency X appreciate. On the other hand, investors may also sell currency X if it has a low-interest rate or is in a volatile economy, hence, making currency X depreciate. So, a float system is entirely **dependent on the will of the market**.

When it comes to a managed float system (BNM’s approach), it applies both the **float system** and the additional **adjustment of interest rates**/OPR. So, instead of allowing the MYR to be completely at the mercy of market sentiment, BNM will adjust the OPR to control the attractiveness of the MYR. Then, following the same theory as the float system, investors will either buy or sell based on how high or low our interest rate/OPR is.

To summarise it in one sentence, a managed float system is like a **halfway point between a completely free market and a tightly controlled one**. Because of this, the value of the Ringgit can fluctuate in a “predictable” manner according to changes in the market.

## MYR vs USD: Is the MYR Currency Just Not Attractive?

![MYR vs USD](../../assets/articles/why-is-the-malaysia-ringgit-currency-so-weak/img-1.jpg)

Now that [BNM has hiked OPR to 3.00%](https://www.bnm.gov.my/monetary-stability/opr-decisions), why hasn’t our Ringgit gone up as well? Is the MYR just not attractive to investors?

Well, **not exactly**. Other global currencies are also depreciating, so it’s not just us. This is because the **USD is strengthening as a currency**. After the US **resolved its debt ceiling crisis** last month, investors naturally **turned back to the USD as a safe haven** to put their money in. On top of that, the [US Federal Reserve](https://www.federalreserve.gov/) (Feds) has also been **raising its interest rates** over the past few months making the USD even more attractive to investors.

One thing that needs to be understood about FOREX investing is that investors will usually convert “lower-valued” currencies into ones with “higher value”. For example, currently, we’re seeing investors converting their MYR into USD because of how attractive it is (as explained above). In a way, when this happens, money is **“going out” of Malaysia** and “coming in” into the US, hence making the **MYR depreciate** against the strengthening USD.

Now we know why 1 USD = RM4.65. But what about 1 SGD = RM3.45?

## MYR vs SGD: Why is SGD Currency Doing So Well Despite USD Strengthening?

![MYR vs SGD](../../assets/articles/why-is-the-malaysia-ringgit-currency-so-weak/img-2.jpg)

Earlier we mentioned that other global currencies have also been depreciating against the back of a strengthening USD; but for some reason, the SGD is doing just fine. In fact, they’re doing great! Why is that?

To answer that question, we need to understand **how Singapore manages its currency**. Singapore’s central bank, The [Monetary Authority of Singapore](https://www.mas.gov.sg/) (MAS) has also adopted a version of the managed float system; but instead of adjusting interest rates/OPR (like how BNM does it), MAS employs an **exchange-rate-centred monetary policy**, whereby it manages the **value of the SGD within a specified range** by actively **buying and selling its currency and foreign reserves**.

For example, if the SGD falls on the lower end of its range—becoming too cheap—MAS would use its foreign reserves to **buy back SGD**, driving its value back up within the range. The converse happens when the SGD is at the higher end of the range.

This strategy enables Singapore to **maintain the "price" of the SGD** within a predetermined range, effectively **controlling the exchange rate** without significantly impacting its attractiveness to investors.

This difference between BNM’s and MAS’s monetary policies can lead to diverse outcomes when the USD strengthens. For instance, the SGD might not depreciate as much because **MAS can adjust its policy to stabilise the SGD**, whereas the MYR could depreciate more due to BNM's policy of allowing it to float more freely. This explains why the SGD didn't depreciate as much as the MYR when the USD strengthened recently.

## Why Can’t BNM Adopt MAS’s Monetary Policy?

![Monetary Authority of Singapore and Bank Negara Malaysia](../../assets/articles/why-is-the-malaysia-ringgit-currency-so-weak/img-3.jpg)

Well, here’s the thing, all countries have different monetary policies to suit what the country needs. In Malaysia, our government decided to set in place the managed float system against a trade-weighted basket of currencies following the economic turmoil of the Asian Financial Crisis in 1997.

Back then in 1998, the MYR had been freely trading in the turbulent seas of international foreign exchange markets. However, the storm of the **1997 Asian Financial Crisis** was brewing on the horizon and Malaysia found itself amidst a catastrophic economic crisis, posing to sink our currency.

In response to this, Malaysia chose to transition from a floating policy to a more rigid exchange-rate policy. Rather than allowing the MYR to fluctuate according to a basket of different currencies within a certain range (like MAS’s current monetary policy), the decision was made to **lock onto one currency at a fixed rate**. This strategy is known as **pegging**.

So, on the 1st of September 1998, Malaysia pegged the MYR to the US dollar at a fixed rate of **3.80 MYR/USD.**

Freed from the unpredictability of the forex market, MYR's value remained steadfast during the tumultuous economic conditions of the financial crisis. This strategy ushered in an era of stability in the midst of economic chaos.

After the storm had passed, on July 21, 2005, the **peg was officially removed**. Since then, the Ringgit has been operating under a managed float system against a trade-weighted selection of currencies.

## Why Did Malaysia Unpeg Its MYR Currency From USD?

The short answer is that it was to **prevent the country from running out of money**.

We have to remember that in order to maintain the rate of a currency against a target (pegging), the government has to keep **buying and selling their currency or foreign reserves** to push the rate up or down accordingly to maintain it within the fixed range.

But what happens when a country’s currency falls on the lower end of that range and they would need to sell off *all* of their foreign reserves? ***What happens if a*** **country** ***runs out of money?***

Thankfully, this hasn’t happened to Malaysia because of our decision to unpeg our MYR from USD. But **the same cannot be said for Hong Kong** that’s facing the threat of a broken peg and potential financial crisis.

This just goes to show that pegging a currency, while a potentially effective short-term measure in times of crisis, can **lead to problems down the line** if not reconsidered when circumstances change.

## How Should Malaysians Feel About The Falling Ringgit?

![Money Exchanger](../../assets/articles/why-is-the-malaysia-ringgit-currency-so-weak/img-4.jpg)

It’s understandable and valid that Malaysians feel **angered and worried** about the weakening Ringgit. But we need to keep in mind that there is a **larger picture** than the exchange rates we see on the money changer TV screen.

The managed float system that BNM has adopted is a strategy that provides us with the flexibility to **navigate the rough seas of global economics** while **protecting the treasure of our foreign exchange reserves**. Because at the end of the day, we don’t want to end up like Hong Kong, now do we?

Let’s also not forget how by maintaining our monetary policy, our country’s **economic fundamentals and investment climate** will be given the chance to **thrive**. Just this year alone, Malaysia has become a beacon, attracting investments from the economic giants of China and Japan. Just recently, we even attracted **RM14.6 billion worth of investments** from Texas Instruments.

Although these investments may not immediately bolster the Ringgit, they are building the fundamental structure for robust **economic growth**, creating **jobs**, and driving **technological advancements.**

So, as Malaysians, we have a role to play. We must remain patient, stay informed, and when the time comes, vote with the best interest of our country in mind. We may not see the fruits of our efforts within a few weeks, months or even years, but have faith and trust that we're nurturing the seeds of a prosperous future for us and our kids a decade from now.

Did you know that besides the current economic downfall that we're facing now, we might see another financial crisis happen soon? Find out what this crisis is about [here](https://www.mrmoneytv.com/post/facing-the-aging-population-crisis-in-malaysia).

## Frequently asked questions

### What is a managed float system?

A managed float sits between a fully free-floating currency and a tightly controlled one. The ringgit's value floats with supply and demand in the forex market, but BNM also adjusts the OPR to make the MYR more or less attractive to investors. Malaysia runs this against a trade-weighted basket of currencies. It lets the ringgit fluctuate in a more predictable way than a pure float.

### Why did Malaysia peg the ringgit to the USD in 1998?

Malaysia pegged the ringgit to the US dollar at 3.80 MYR/USD on 1 September 1998 to shield it from the 1997 Asian Financial Crisis. With the MYR trading freely in turbulent forex markets, the crisis threatened to sink the currency. Locking to one currency at a fixed rate kept its value steady through the chaos, buying stability until conditions calmed.

### Why did Malaysia unpeg the ringgit from the USD?

To avoid running out of money. Holding a peg means the government must keep buying and selling its currency and foreign reserves to defend the fixed rate, and a currency stuck at the low end can drain those reserves entirely. Malaysia removed the peg on 21 July 2005 and returned to a managed float. The article cites Hong Kong as a cautionary case of a peg under threat.

### Why doesn't the Singapore dollar fall as much as the ringgit?

Because Singapore manages its currency differently. The MAS runs an exchange-rate-centred policy, actively buying and selling the SGD and foreign reserves to keep it within a set range, rather than adjusting interest rates like BNM. So when the USD strengthens, MAS can step in to stabilise the SGD, while the more freely floating MYR depreciates more. The article's figures put it at RM3.45 per SGD versus RM4.65 per USD.

### Does a weak ringgit mean Malaysia's economy is in trouble?

Not necessarily, per the article. Other global currencies were also depreciating against a strengthening USD, so the fall was not unique to Malaysia. The managed float protects the country's foreign reserves rather than draining them to defend a rate. The article also points to fresh investment, including RM14.6 billion from Texas Instruments, as a sign of underlying economic strength.