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Thursday, August 13, 2015

The Drop of the Ringgit



Salleh Said Keruak


China has dropped the value of the Yuan in a second day in a row. Economists have said that there is both good and bad in that happening but overall China is going to benefit with a lower Yuan. And that has made many countries worried because the positives outnumber the negatives and are in China’s favour.

Germany is being criticised for taking advantage of the lower Euro. The Euro is tied to countries like Portugal, Greece, Italy, Spain, etc., and because of the weak economies of those countries the Euro (at RM4.50) is lower than the British Pound (RM6.30).

The critics say that if Germany was still using the Mark instead of the Euro then German goods and services would be higher than they are now. But because Germany uses the Euro then it has an unfair advantage to the rest of the world.

In other words, the lower Euro is good for Germany and Germany is benefiting from it. Although that may be unfair it is not immoral or illegal as this is how the system works and all Germany is doing is it is taking advantage of a system that already exists.

Whether it is good or bad that a country’s currency is lower depends on how that country benefits from it. From the point of tourism and exports it is, of course, good. From the point of foreign debts and imports it would be the reverse.

So before we jump to conclusions and say that a lower Ringgit is 100% bad we need to analyse the overall situation and add the plusses to the minuses and decide what the overall and long-term outlook is going to be to the country.

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