KINIBIZ Over the past few months, the Malaysian ringgit has been the worst performing currency against the US dollar. On Jan 20, the ringgit hit a six-year low to close at 3.60 to the dollar which was the lowest it had been since April 2009. Since crude oil prices began their plunge in the latter half of June, the ringgit has dropped around 6.5 percent in value against the dollar.

Six years ago, the world had been in the midst of the Global Financial Crisis which began with the US subprime crisis which developed into a banking crisis and led to an overall global slowdown which took its toll on export dependent nations.

As the ringgit has depreciated against the greenback the ever present fears that another 1997/1998 Asian Financial Crisis or another 2008/2009 Global Financial Crisis might be at hand have resurfaced.

Bank Negara Malaysia (BNM) governor Zeti Akhtar Aziz ( right ) however recently refuted that. She said “the ringgit’s weakness does not reflect Malaysia’s current fundamentals which are still strong.”

In this piece, KiniBiz looks at what drives a currency and what is causing the ringgit to depreciate against the dollar this time around.

What determines the value of a currency?

The ringgit is a ‘managed float currency’ which means that its exchange rate is allowed to appreciate and depreciate against other currencies according to market conditions. Bank Negara Malaysia will occasionally intervene to stabilise the currency in either direction when it sees fit but it does so without fixing or pegging the ringgit to a particular level to trade at.

For the full story go to KiniBiz .