Currency rises in Malaysia
Bloomberg News
July 23, 2005

KUALA LUMPUR The ringgit rose slightly on Friday after Malaysia removed its currency peg to the dollar for the first time since 1998 in the wake of the Asian financial crisis.
 
The government announced on Thursday that it would allow the currency to appreciate by switching to a managed float system six months after Mahathir bin Mohamad, who as prime minister had imposed the capital controls, suggested that it was time to review the peg. The ringgit has risen less than other Asian currencies, helping to keep Malaysia's exports competitive with rivals. The currency had been pegged at a rate of 3.8 to the dollar since September 1998.
 
"The Malaysians have long realized the ringgit is undervalued and significantly so," said Simon Flint, head of emerging Asian currency strategy at Merrill Lynch Singapore. "The market is going to keep Malaysia under a lot of pressure," to strengthen the ringgit.
 
On Friday in Kuala Lumpur, the ringgit traded at 3.7775 ringgit to the dollar, compared with 3.8000 late Thursday.
 
The Kuala Lumpur Composite Index finished at 939.69 points, up 17.75, or 1.93 percent.
 
The removal of the peg came less than an hour after China said on Thursday that it would let the yuan appreciate.
 
Malaysia's central bank, Bank Negara, said on Thursday on its Web site that it would use economic fundamentals to set the value of the ringgit and monitor it against a currency basket. The bank also said it would maintain the value of the ringgit against a trade-weighted index of its major trading partners for stability.
 
Malaysia set the ringgit peg in 1998 after a devaluation of the Thai currency in July 1997 led to a slump in the currencies of Southeast Asian nations. Speculators drove the ringgit to a record low of 4.885 per dollar on Jan. 7, 1998.
 
The Malaysian central bank's governor, Zeti Akhtar Aziz, said Thursday that the ringgit should not stray too far from existing levels "because it already reflects our fundamentals."

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