Chinese Yuan and the Malaysian Ringgit
On 19th Aug, Chinese Yuan started trading against the Malaysian Ringgit, as declared by China Foreign Exchange Trading Centre (CFETC).
The move groups the Malaysian Ringgit within a privilege few which can trade direct against the Chinese Yuan (RMB), including both the US Dollar and the Euro. Currently, the Malaysian Ringgit trades against the Chinese RMB at 1 MYR = 2.161 Chinese Yuan (RMB). With the latest announcement by CFETC and as a consequence to limit any speculation, the Chinese Government stated that the yuan is now only allowed to trade up to five percent (up or down) against the ringgit from the central parity rate.
As the Yuan is the more dominant currency, the announcement brings more stability towards the Malaysian Ringgit with the soft pegging. The bodes will for the Malaysian Ringgit, exemplified by the fact that the Ringgit rose to a 13 year high against the US Dollar since the announcement by CFETC was made.
Speculators are now pursuing the Singapore Dollar as well, as Malaysia’s friendly neighbour southwards does not trade direct against the Chinese Yuan currently. With China set to futher liberalise its forex exchange market in the medium term, forex traders are betting on both the Singapore Dollar and the Malaysian Ringgit against the US Dollar.
In the larger scheme of things, the Chinese government is taking small but concrete steps to establish the Chinese Yuan the dominant international market currency.
When that target is achieved, expect the gradual but sure decline in the US dollar and we might be facing yet another sub-prime mortgage crisis.
It remains to be seen whether the Malaysian Ringgit can truly stand on its own.
As of now, the Iskandar Malaysia project has yet to take off with multiple delays. There has also been reports of widespread corruption, involving large-money scandals.
Since the measures on the Yuan trading is announced, we have also not seen any appreciation of the ringgit. Time to sell off and look into other regions.