Malaysia Unpegs Ringgit From U.S. Dollar

Malaysia Unpegs Ringgit From U.S. Dollar
Thursday July 21, 8:12 am ET
By Vijay Joshi, Associated Press Writer
Malaysia Unpegs Ringgit From U.S. Dollar After China Move

KUALA LUMPUR, Malaysia (AP) -- Malaysia said Thursday it was unpegging the country's currency from the U.S. dollar and replacing it with a managed float, making the announcement immediately after a similar move by China.

The central bank, Bank Negara, said in a statement that the ringgit, which had been fixed at 3.8 to the dollar since 1998, will be allowed "to operate in a managed float" with immediate affect.

Its value will be determined by economic fundamentals, the bank statement said.

The statement was issued minutes after the Chinese government announced that it will no longer peg its currency to the U.S. dollar but instead let it float in a tight band against a basket of foreign currencies.

The yuan was strengthened to a rate of 8.11 to the U.S. dollar -- compared to the 8.28 it has been set at for more than a decade. The new trading regime will begin Friday.

Bank Negara Malaysia will monitor the ringgit exchange rate against a currency basket to ensure that the rate remains close to its fair value. It did not give a range for the float.

After shifting to this new system, the exchange rate "is not expected to deviate significantly from the current prevailing level," the bank said.

The bank said the current valuation of the ringgit is consistent with the country's economic fundamentals and takes into consideration "developments in our trading partner countries" -- an apparent reference to China.

Malaysian had insisted previously that it is not working with China on changes to their currency exchange rates, although it had indicated it may be prepared to take action if China moves on its yuan.

"Changes in the international and regional financial and economic environment have made it important for Malaysia to have a stable exchange rate against its major trading partners, in particular, the regional countries," it said.

Consequently, the stability of the ringgit exchange rate against the regional currencies will become increasingly important, and stability can best be achieved by maintaining the value of the ringgit against a trade-weighted index of Malaysia's major trading partners, it said.