Monday, February 2, 2015

Currency Manipulation and Economic Sabotage

This started circulating on blogs and social media sometime late last week:

How Tong Kooi Ong is attempting to break Bank Negara and crash the RM

An owner of a prominent news media empire is casting undue influence on the financial and political state of Malaysia for his own personal monetary gain.

Sources within Bank Negara Malaysia (BNM) revealed that Tong Kooi Ong, the owner of the Edge Group and The Malaysian Insider has taken a USD1.4 billion short position on the Ringgit through a proxy. The first transaction took place in August 2014 and subsequent short positions have been taken leading up to January 2015….

The government’s reaction can be read here and here. I find it telling that Deputy FM Datuk Ahmad Maslan mentions MCMC, which suggests the investigation would include not just the allegations, but the allegers as well.

It's a long, and fairly erudite posting – there are little details in there that suggest the writer knows what he/she is talking about, like for instance the role Germany played in the UK’s 1992 ERM crisis.

But to summarise, the blog post alleges that Mr Tong took multiple short positions on the Ringgit, and used his control over his media empire to foster a climate of doubt and uncertainty over the Ringgit to profit from its selldown. The blog post also alleges that this was also an attempt to “break” BNM (*snort*) and undermine the economy.

I won’t address the media angle (which honestly sounds fiddly to me), only the economic and financial ones.

First, here’s the volume of transactions on the FX markets over the past three years:


Tong’s alleged USD1.4b would have been big money – in 1997. Today, not so much. Between August and December last year, total FX turnover (inclusive of spot, swaps, forwards and options) in Malaysia exceeded RM1 trillion. USD1.4b would have been a blip. It’s also laughably small compared to BNM’s international reserves of nearly RM400 billion.

So much for that. I think most people would recognise the claim of trying to “break” BNM for what it is – hyperbole.

More pernicious however is the allegation of economic sabotage, that selling down the Ringgit is “unpatriotic” and would damage the economy. This speaks more to our prejudices, and to our denial of complicity. The overarching narrative of 1997-98, and of most currency crises around the world, is that it was the fault of greedy, unscrupulous currency speculators that cause currency devaluations and the resulting economic fallout.

The harsh and unpalatable truth is that it was mostly our fault. The Asian Financial Crisis was the culmination of a number of external factors combined with our own policy missteps. Blaming the whole shebang on speculators blinds us to our own culpability. I won’t get into all that (somebody really needs to write a definitive monetary history of the AFC), but the whole “currency devaluation = economic crisis” as alleged in the blog post is totally wrong. Rather, it’s the resistance to currency devaluation that precipitates crisis.

In the UK in 1992, in Mexico in 1994, and in Thailand, Indonesia, Malaysia and Korea in 1997-98, the key ingredients were an overheating economy and overvalued, fixed exchange rates. Combined with insufficient international reserves, and we have the conditions for a currency devaluation. In essence, currency traders were presented with that rarest of market opportunities – a sure-fire, can’t-lose, one-way bet. If you’re going to wave a red flag in front of a bull, don’t blame it if it charges.

And when that pressure came, the response typically has been to intervene in the FX markets by selling foreign currency for domestic currency, and to hike up interest rates to make short selling prohibitively expensive. I’ll get to the specifics of this in a follow-up post, but it’s the defense of the initial overvalued currency peg that damages the economy, not the inevitable devaluation afterwards.

In Malaysia in 1997, overnight rates reached as high as 50% with monthly averages around 10%, about 3%-4% above rates prevailing in 1996 and early 1997. That prompted a massive monetary contraction – M1 growth crashed to –20% by September 1998. Businesses that were used to paying 8%-9% on revolving credit and working capital were suddenly having to pay 15%, 20%, 25%. No business can sustain those kinds of interest rate shocks for a quarter or two, much less for a year.

On the other hand, the currency devaluation of 1997-98 carried with it the seeds of economic recovery. Lower relative prices created export demand, which boosted the economy and allowed businesses to recover.

Contrast that with what’s happening today. BNM no longer uses a fixed exchange rate to anchor monetary policy; now its anchored on the overnight rate, which generally moves within 0.05% of the OPR and hasn’t budged since the last hike in the OPR last July. No interest rate shocks here. The depreciation of the Ringgit in recent months (driven almost wholly by the decline in crude oil prices) has actually helped buffer the economy from job losses and a growth slowdown.

CPO for example has seen little change in international pricing, but the depreciation of the Ringgit has effectively boosted producer income by near 10% in Ringgit terms. Every drop in the Ringgit has helped to save jobs in the oil & gas sector, which would otherwise have been lost if the Ringgit had not dropped.

People still see the decline of the Ringgit in the last six months as a negative, for obvious reasons – the cost of foreign holidays has increased, as has the cost of imported goods (hmmm, neither is exactly relevant for the bottom 80%). But the flip side is – you’ve still got a job. That might not have been the case if BNM made a futile (and economically damaging) gesture towards defending an unsustainably high exchange rate.

If I can overgeneralise, currency depreciation is essentially an income transfer, from consumers to producers. The opposite would also be true – a currency appreciation is an income transfer from producers to consumers. Since its the USD that has been appreciating (against everybody, mind), what’s going on now is an income transfer from US producers to producers outside the US, and from ex-US consumers to consumers in the US.

Given the overall slowdown in global growth, that’s not a bad trade-off to make.

To summarise:

  1. The charge of allegedly trying to manipulate the currency? False
  2. The charge of economic sabotage? False

I’ll leave the charge of media manipulation to those better equipped for it.


  1. They say the ringgit is about to crash and the economy about to tank, thus they are making the first move to find a scapegoat. Who else but the minority?

    All these 'blame the minority thing' is just hearsay, no truth to it. It is always easier to blame others than to own up and rectify the mistake.

    If Tong and his USD1.4 billion can crash the Ringgit, it is not because Tong is good at it, it means BNM is incompetent. It is like losing a wrestling fight to a 5 years old kid while you are holding a machine gun.

    1. "They say the ringgit is about to crash and the economy about to tank, thus they are making the first move to find a scapegoat. Who else but the minority? "

      the currency manipulation and sabotage allegations has gotten play because people realize alternative medias' coverage of ringgit crashing and economy tanking is not being balanced by other point of views (eg has analysis like Hisham's which do no forecast doom and gloom gotten comparable front page, headline coverage in Malaysian Insider?). bias reporting makes ppl search for the agendas behind the news. and makes ppl susceptible to conspiracy theories. this is true with mainstream and alternative medias

  2. Well written, Hisham.

    Unfortunately the political environment in the country is verging on the toxic.

    It seems that it is fair game to target the ethnic minorities in the country with all types of accusations.

    Rest assured that this will not be the last of such episodes.

    "Crashing" Bank Negara? What will the conspiracy theorists think of next?

  3. The economy is not just about facts & numbers; a big chunk is about sentiment, trust & confidence...whoever has control on the intangible aspects of the economy can in fact influence its direction...we've seen this one too many times in recent history...lets wait & see whether the fish takes the bait?


    1. It's all about "perceptions", right?

      Having said that, why would anyone want to bet against Bank Negara? Or "short" the Ringgit?

      Some folks may have "delusions of grandeur", but the fact of the matter is that Malaysia is only a bit player in the world of global finance and forex markets.

      Unless, of course, one has other ikan to goreng.

      In which case, any accusation, no matter how farfetched or nonsensical, gains instant traction.

  4. Dei dude

    1. Why write this now, eh dude? What consideration is being left undeclared, if any? Who are you writing for if ever for anyone else including yourself and Mr Ghost, eh dude?

    2. Why be taciturn about the amounts leveraged during the Bank of England fiasco, eh dude? Why the failure to mention Lady Thatcher:

    "Margaret Thatcher was right: the UK had no business trying to artificially prop up its currency in an era when a handful of hedge funds could assemble more capital in a few hours than the Bank of England had at its disposal".

    And just for the road, dint Soros start with a piffling 1.5B?

    "And so that morning, Soros and his fund increased their short position against the British pound from $1.5 to $10 billion"

    And that was oh so 1992ish mind you, so folks read the link carefully and understand what damage yer hedges are capable of inflicting on your garden/cabbage patch...hahahaha

    3. And since when this became an ethnic minority or racial thing? What twists and spins, you people add on just to deflect attention, perhaps taking a leave outta the MAS book on their recent devaluation, eh brutes?

    Typical, ignorant proles arent you folks wherein Rashid Hussain is either a de-ethnicised iguana or a European farang in Malay garb?

    How come everyone drops RH in the ethnic- blaming conspiracy, convenient eh?

    In the end DS got it just right, subprime started with a small fire in the outliers of the US economy..before it wrecked among others Lehmann, Fannie & Freddie May etc. On the way, it was fed by sentiment, trust & confidence plus, may I add, perception. But then again, ignoramuses are easy pickings for everyone, I guess

    Once again, why poke yer head suddenly in here, eh dude?

    Warrior 231

    1. I am not even sure what all this means.

      For starters, who is this "dude" that you have mentioned? Tong? Hisham? The PM? "Awang Selamat"? Or the piranhas who jumped on the phrase "economic saboteurs" (or something spelt similarly)?

      And I am curious how a "handful of hedge funds" can rustle up the moolah to take on BNM?

      Are you suggesting that the next Asian Financial Crisis will start with BNM being brought to its knees?

  5. All I am interested is the truth and so let the relevant agencies ferret that out via a thorough investigationinto all avenues (if any) while at the same time not impeding the other party's right to legal recourse if indeed he/she had been calumniated.

    And in the while, let all personal theories and conspiracies of ethnic baiting etc cease along with any highfalutin exercises dismissive of improbabilities, no matter how far fetched those improbabilities may seem.

    Let us get to the core to determine whether policy failure, market rigging, external circumstances etc is responsible for the current state of things, period, without us having to drag elderly respected statesmen or for that matter, race or religion into the equation shalt we?

    Warrior 231

    1. I would tend to agree with you that race and religion are getting unwarranted play in the country.

      An earlier post described the environment in the country as "toxic".

      We have a Minister who has called on Malays to boycott Chinese-owned businesses in the country. Where is this coming from?

      As for "elderly respected statesmen", let me ask what would have happened if a certain elderly respected statesman had decided to peg the Ringgit on par with the Singapore Dollar back in the day?

      Or expose the Ringgit to the full forces of the "market" and damn the consequences?

    2. "We have a Minister who has called on Malays to boycott Chinese-owned businesses in the country. Where is this coming from?"

      it comes from racial stereotyping

      Lim Guang Eng reminded ppl to "Don't forget that the Chinese community pays the most taxes in Malaysia" ie the biggest taxpayers like business owners and top management are chinese.

      some malaysian chinese are proud of this stereotype.

      but the downside is when ppl get angry at business owners and top management who don't reduce price, the one who will face the backlash are the chinese

      the stereotype is not true as tax is derived from economic activity which involves all races, eg your salary is paid by your company who is paid by its customers who happen to multiracial and even multinational, hence, no such thing as malay tax nor chinese tax.

  6. Totally agreed that USD1.4 bil is a tiny amount to crash our currency

    However, disagreed on ur facts and opinions on foreign exchange. In the Asian Financial Crisis, Thailand was initially fixed, floating it in 1997, Malaysia was initially floating, fixing it in Sept 1998, at the end of crisis, Indonesia was floating it all the way, and look what happened to its currency

    U see, almost all of the countries were having floating exchange rate for most of the time during the crisis, even a deputy director from BNM believed that the pegging was the right thing to do at that time, just that our mistake was we pegged it for too long

    Letting the market decide? Our currency would have become like Indonesia today... The pegging did not encourage short selling, instead it discourages it... what good will the speculators get if the government guarantees that the currency will not fall

    Indeed having our reserves depleting is a bad thing, but letting our currency heading to a waterfall isn't good either

    It's not about the depreciation of the currency, that was merely a symptom, the real problem lies on what caused the currency to depreciate

  7. Ringgit was loosely and unoficially pegged to USD (2.5-2.6) just like Baht and Won pre-AFC. some called it de-facto peg or like Hisham called it soft peg.

    i wouldn't call it fixed exchange rate but definitely not free floating.

    Rupiah did appreciate sharply after the crisis subdued even without the peg although not to its pre-crisis level but did ringgit recover to its pre-crisis level until now? no. so i'm not so sure what do you mean with our currency would have become like Indonesia.

    pegging didn't discourage short selling but capital controls sure did prevent short selling effectively as Hisham explained in his previous post.


  8. 1. Here is a cogent and easy to understand narration of the 1992 ERM crisis aka "Soros Curency Soiree" ; D and how pegs sans capital controls are particularly vulnerable:


    By the way, the Bank of England reserves during that 1992 debacle was approximately US 40 billion as per Fig 4 here ( paper unrelated to ERM by the way):

    and just for the road, Soros.....drum roll please ..... had US 1.5billion in his pocket while the UK had unlimited access to the Deutsch Mark as well so I will leave the chickhawk and keyboard speculators to munch on that...hahaha

    By the way, pegging the MYR to a banana currency like the SGD is laughable. Whoever made that suggestion above needs a thorough mental/emotional assessment. In fact, the SGD MAS induced de facto depreciation the other day had nothing to do with foresight or other similar garbage. Its a panicky move to ensure continued export competitiveness and head off looming deflation heralded by "disinflation" first and given growth is also badly listing (Q4 was very bad):

    And are we seeing the currency wars being unleashed:

    and Roubini has a plethora of cogent reasons as to why everyone is in a mire, aggregate demand/effective demand since 2008 is virtually dead or comatosed at best:

    Me?I will quit peddling dire, dreary news on a daily basis to help my local currency...wink wink....hahaha

    Warrior 231

    1. Well, didn't Tun Dr Mahathir peg the Ringgit at 3.80 to the US Dollar as part of his capital controls regime?

      Well, maybe not him directly, but he must have received inputs from his advisers at the time.

      Was the 3.80 figure plucked out of the air? Was there some abstruse maths formula behind it? Why not 2.50? Why not 1:1, seeing as how the USD is supported by the Fed's money printing?

      You did make a good point about "currency wars". The Reserve Bank of Australia is the latest to jump on that bandwagon when it cut the interest rate by 25 basis points. A deliberate weakening of the Aussie Dollar? For sure.

      Oh, just for laughs, the "banana currency" that is the Singapore Dollar is trading close to par against a weakened Aussie Dollar.

      Maybe there's something to be said for "safe havens" after all .

    2. Ok, I will bite....though I don't see what the conspiracy theory that MH370 supposedly "shadowed" a SIA B777 aircraft operating as flight SQ68 has anything relevant to do with this thread.

      Oh, wait... I get it. Maybe it's all about creating "noise" and "diversions" so that other "stuff" gets undetected.

      What other "stuff", you may ask.

      Well, there's the matter of a certain fund with links to a well-known tax haven. 'Nuff said.

    3. Ah.......I see and it took you that long for your stupidity to get going to figure that one small portion out. Must be pretty torturous, eh?. Cheer up and chins up!! you're half way there by the way, try harder......hahahahahahahaha

      And one more thing, I never base my queries on flights of fancy or whimsy nor am I goaded by malice or anything. I just want the truth, far fetched as it may seem or is it?.

      By the way, evelyone folgot light bar the pesky mouse in the loom with an elephantine memoly? (ullgh) the spelling!!! ....hahahahaha!!:

      "One other thing gleaned from this whole exercise: the forecast estimates suggest the sell down in the Ringgit has been excessive – it’s now substantially lower than the long term relationship suggests. With Brent at USD50 per barrel, the implied USDMYR exchange rate should be about 0.295, or RM3.38 per USD, compared to yesterday’s exchange rate of RM3.57. That’s approximately a 5.4% difference.

      As usual, the FX markets have overshot the fundamental value."

      That a difference of almost 0.20 sen by the way. And assuming everything is squeaky clean, if I had placed a bet of RM1 million, I walk away with 200000.....Fuyoh,drats! what a missed opp for yours tluly......hahahahaha

      So can anyone here explain the discrepancy?Oops!! stupid pesky can only get that via a thorough investigation!! unnerstand (deliberate spelling mistake...hahaha)

      Folks, the blogger is effecting an elegant silence of his own is it regarding my query (no 1) at 10.10pm Feb 2? Its been almost 93 hours and counting dude. Whatever, I don't expect the world to cave in......not yet anyhow.......hahahahaha

      Warrior 231

    4. @Warrior


      Was that meant for me? Sorry, your comments are sometimes so obscure that it's hard to tell what you meant...or who you meant it for.

      My, you have a suspicious mind.

      Sorry dude, I have no skin in this game. Where I work, we're banned from trading on any market, local or foreign. Nor is my employer allowed to take any open FX positions (we do a lot of hedging, so we're mostly FX neutral). Neither FX nor commodities are investment asset classes under our mandate.

      If you must know, one of my Facebook followers sent the link and requested my comment on the issue. I would have done it anyway, without the prompting or any other ghostly requests.

      As for the divergence between fundamental equilibrium valuation and market valuation, it's not something that can be traded on - exchange rates are notorious for wandering long and far from fundamental valuation, anywhere from 3-5 years after the initial shock.

      Lastly, here's the reason why I liked the article about FX intervention and Greenspan:

    5. With all due respect, I think that @Warrior erred by dragging in the MH370 incident.

      This was not only irrelevant, but highly disrespectful to the families of the crew members and passengers on that ill-fated flight who are still struggling to find closure.

      You could have very well addressed the 1MDB conundrum or imbroglio, if that is what you had in mind, front and centre, instead of going off on a tangent.

      And, if you have a beef with Hisham, there are other ways of addressing it.

    6. Since the Queen bee has hatched her eggs in his/her cranial cavity and them spawns have munched on the internal circuitry and rendered his/her brain synapses functionally useless I don’t in the least expect Beefarseer aka fuckhead to even fathom what he/she is mumbling about.

      Have you any inkling as to what fundamental equilibrium value is or for that matter, market value is, shithead? For starters, I am not 1MDBing any entity which by the way is of no concern of mine here whatsoever given all the opacity and lack of proper data for proper conclusions to be drawn.

      I am just calling for the proper scrutiny of all scenarios in relation to the MYR crash to find out the actual cause, nothing more nor less. Get it pillock?!

      Me having a beef with Hisham? Wrong! Twathead! I have mutton or for that matter lamb chops with him, cockshit of a lousy idiot! Hey small time Charlie of a child minder if I have a beef I invite him for a brawl or a joust, nice and proper understand. And it would be no skin off my nose if I get pwned. No need for niceties on that score!

      I raised those Qs cos I was simply gobsmacked by Hisham’s post. Gobsmacked that an intelligent and neutral blogger who hitherto had written eruditely on all things economic, inequality etc, with liberal dashes of parametric or non-para data would suddenly pen a turgid exoneration.

      And boy am I flabbergasted that such a piece is so absurdly dismissive of any alternative plausibility.

      Who do you think a commenter like me is, eh beefarseer? Your tin-can robot who should obey your effing commands on what and what not to broach? Who do you think you are? Some Harvardian scholar schooled in everything economics or a pro-Singaporkian troll who will be here in a jiffy if one ever touches on anything even remotely related to his/her shitty red dot.

      Damn! I have the accursed privilege of reading your crap blather here on everything wrong with Malaysia and everything perfect with Singapork. You see POS, you are nothing but cuntjuicing, johnsuckling, illiterate troll whose condescending shitty take on Malaysians and by implied default, Malays is downright grating

      Now get outta my sight and stay outta it. There was no slur aimed at any MH370 passenger living or dead. That was purely for all intents and purposes, an allusion, a device to get non-delusional (not you certainly) folks here to see reality straight in the eye and get their Eureka fix!!

      They are more capable of getting that than you , who is pretty worried that his/her shitty dot gets tarred in the bargain. Next time, think before you upbraid someone, POS or I will CLOBber you in your head and kick your nuts in if you have any….Now scram up into yer mother’s effing blasted birthhole stupid singaporkian fellatist!!

      Warrior 231

    7. It's so easy to get a rise out of the warrior.

      Never mind that none of his more fanciful flights of imagination have panned out.

      In fact, he must be feeling distinctly underwhelmed that his doomsday scenarios have largely gone unnoticed by those who matter.

      And, btw, it's rich that you now use the word "allusion" to justify dragging in the MH370 incident. A desperate attempt to get on the side of the "good guys", is it?

      As for Singapore, Hisham had posted previously with regard to his scepticisms about about the city-state's finances. Whether his views get any traction is up to those who read his blog to decide for themselves.

      So, I'd say to you - think twice about "clobbering" and "kicking" - because the primary target of your angst is still there and doing good.

      Which may be unpalatable to you, but, hey, what the heck. Stuff of dreams, right?

      Incidentally, you might want to revisit Robin Hobb's books to see who Bee Farseer is.

    8. @Bee Farseer

      As far as I'm concerned, I've no more doubts about Singapore's public finances. I'm more or less satisfied that the numbers are accounted for, and where the money is deployed.

      To be sure, that doesn't make me any happier. While there isn't a black hole as Prof Balding alleges, I still think Singaporeans aren't benefiting at all from the arrangements.

  9. Warrior, keep it coming.

    How is the grass lately, too much rain.

    Yes, your narrative about Soros and the herd is exactly what I thought and think except I do not know how to put it in writing, thanks.

    Gong Xi Fatt Chai to all, may all of you have a healthy, happy, wealthy new year.

    Zuo De

  10. @Warrior

    Nice, but you missed the most important fact of all - pegged, overvalued exchange rates, both in the case of GBP in 1992 and MYR in 1997. That's where Fact 3 really comes in, and where speculators can really make a killing, because they know the whole market will be with them. Not so easy when fundamental over/under valuation are relatively minor, as is the case with most floating regimes.

  11. @Warrior

    Aren't you making my point for me? YES, absolutely, noise traders and momentum traders make the FX market prone to long swings around fundamental values. No disagreement, that's long established in the literature.

    What you're missing here is that speculative pressure becomes greater as market values depart further from fundamental values. Traders might be irrational, but they ain't stupid.

    Given the undervaluation of the RInggit relative to the USD, the correct speculative play call would be a buy, not a sell. But given also the USD's "exorbitant privilege", there will always be a chronic and structural degree of USD overvaluation. Which means the wedge between market value and fair value (and thus scope for speculative profits) isn't very big.

    Oh BTW, at current Brent prices, we've pegged short term fair value for USDMYR at RM3.52. Interest parity model puts it at RM3.45 as at end January. In many ways, this is really a sell down based on fundamentals.

    The drop in oil prices have been the trigger for the selldown of the Ringgit. Virtually every foreign analyst has pegged Malaysia as a "net oil exporter" and (over)selling Malaysian assets is really part of the global oil/commodity play. That's why we've got good company on the way down with the AUD and MXP.

    Do speculators have a role in this? Sure, but this isn't a one way bet, as it was in 1992 and 1997. If oil finds a bottom and bounces back, momentum for the Ringgit could swing back very fast, as it did last week.

    Last point: I really shouldn't have used the term fundamental equilibrium value, as that has a very specific meaning and is definitely not something that can be traded on - it's multilateral, not bilateral. I think fair value would be a better term.

  12. @Zuo De

    Gong Xi Fa Chai!

    May you and your family have a happy and prosperous year of the Goat.

  13. @Warrior

    Just to clarify my point above, while FX traders can be and are irrational, it's also very well established in the literature that although FX market rates do depart from fundamentally justified values, they swing around these values, not permanently depart from them. Initial shocks are always followed by convergence back to fair value, then overshooting on the other side.

    Case in point: the MYR REER index that I calculate (2000=100), after nearly five years above 100, is now back at the same level it was in 2000.

  14. So, after all this debate, any we any wiser?

    Hedge funds and currency trading will always be around. And they will continue to take positions on currencies. This may or may not be based on "fundamentals" or "perceptions".

    I think that central banks will be wary of taking on hedge funds and currency "speculators" head-on. Many of the former don't have the "firepower" to do so or their underlying economies may not be in good shape

  15. @Zuo De

    I read in a book recently that a fool is defined as a person who ignored information because it disagreed with desired results.

    Gong Xi Fa Cai!

  16. Anon 2:32,

    I have much to learn in the economic field.

    But I do know that the economy of Malaysia is pretty good (2014 GDP 6%, EPF dividend 6.75%) if that makes me a fool, gladly.

    Zuo De

  17. Ah, yes...maybe.

    But what about 2015, 2016...all the way up to 2020 when the country hopes to achieve "developed nation" status?

    What about the implications of the Asean Economic Community? And the TPP FTA which is looking more and more like a done deal, protestations to the contrary? What about a prolonged period of low prices for oil and natural gas?

    All this is "information". Are you ignoring it because you already have the "desired results" in mind?

    Forgive me, but there are those who don't subscribe to your thinking.

  18. What is your "desired results"???

    Sure there are a lot of "information" in the print media, the e-media as well as the "mouth" media.

    And what will happen if we do not make it to be a "developed nation"? So what, a few years late, so what?

    Prolong period of low oil price and so what? Please do remember in the economy there is also other sectors called service, manufacturing, tourism, etc. So you are saying all these other sectors will not improve or increase during this low oil price period? They do not matter at all? Surely in all these other sectors, part of their cost (oil) is now reduced and they should be making more money, no? I am!

    BTW, tyre prices have dropped almost 50%. So as a consumer, good, no?

    But then you always look at everything as "half empty" or like it is the end of the world for Malaysia. Zeti just said there is possible RM 7.5 b of extra spending money in the pocket of your average malaysian because of the low oil price. Good no? Or Zeti also a fool in your definition.

    They will spend no?

    You seem to be ignoring all these positive information No?

    So what are we to do? Stop all import so that the current account improve rather than deteriorate like most analysts said? Don't buy imported grapes, apples, fruit. Stop buying all BMW, Merc, Peugot, Renault, Honda, etc??? OR just stop buying anything foreign! And so what if the current account goes negative? Many countries have negative current account and they still survive, no?

    Government stop borrowing, go into austerity?? Do you not read that all governments that went the austerity route ending up with much slower growth, even some negative growth?

    So what exactly is your "desired results", convince me.

    BTW, there should be a recession coming by 2018.

    Zuo De.

  19. Manufacturing? Take away foreign labour and what's left in the manufacturing sector? It's not as if the manufacturing sector in Malaysia is climbing rapidly up the skills and value-added curve. If it is, quote the facts to convince me.

    Ditto for services. How is Malaysia going to compete in high-end and high value-added services against the likes of China, India, the Philippines and Singapore? What is Malaysia's unique niche, competitive edge or advantage? Again, if you have the facts, convince me.

  20. Yes, they still "survive", but at what price?

    By ignoring issues of competitiveness, productivity, globalisation, competition and the fact that there is no such thing as a "free lunch"?

    Even Paul Krugman, in his cups, wouldn't be so Pollyanna-ish!

  21. Well, blow me down! Seems like there a lot of them twisters in them redneck fields….mah gawd , ah saw so many of them twisting in there that fa a moment ah thought that if ‘ifs' and ‘buts' were candy and nuts, everyday would be Christmas!!!

    Ah been shooting them geese…when someone hooted that the dude was up to no good…sure been a bad boy , aint you dude? Ah gonna shoot and watch yer scram like a jumping jack rabbit so better take cover………………….

    Now lookee here mate, lets get a few things straight.

    Fact 1: In 1997, Malaysia was on a managed float or soft peg whatever…never a hard dick peg, as you claim, like the pound was in ERM 1992…understand, mister:
    (table 1 page 3)

    Additional reading on the merits of various exchange regimes for those interested here:

    Now lets see what Atish says about them pegs and floats, especially ahem...managed floats.... sir:

    “Ambiguous in the bipolar prescription is where to place managed floats. While Fischer placed them at the safe pole with free floats, others would place them in the risky intermediate regime category. Empirically, different classifications give starkly different answers, which is especially problematic as managed floats are becoming increasingly popular among EMEs. Using binary recursive tree analysis, we establish that there is no simple dividing line for instance, according to exchange rate flexibility—between safe and risky managed floats. Rather, what distinguishes safe from risky management of the exchange rate is whether the central bank intervenes to limit overvaluation, and refrains from intervening to defend an overvalued exchange rate”
    By the way Atish also says in there that free floats are the LEAST riskiest of them all, which also means they are NOT totally risk free. Case in point the GFC of 2008.

    And you should surely know better than most that with few exceptions, most so called free floats are in fact “dirty floats” another euphemism er…for managed floats!!

    And just two for the road to proof that even so called free floaters are susceptible to gyrations (as Atish implied above):


    b. Speculative Positioning Around Episodes of Central Bank
    Intervention: Evidence from the Yen/Dollar Market
    Sandeep Bhutani; Marian Micu; and Pavlin Savov

    Fact 2: In December 2014 BNM’s forex reserves dwindled by some 11 billion…

    Forex dwindling is a sign of it being used for currency defence. Apparently, the MYR would have headed big time south of yer FEV or Fair Value whatever if BNM didn’t step in to hit them brakes.

    But to decline by that much suddenly in one month? Go figure.

    Starngely, it stopped the free fall as I will show in my later parts....time permitting. For the moment, ciao!

    Warrior 231

    1. So BNM engaged in a spot of "currency defence".

      At what cost?

      Was it then " artificially" propping up the Ringgit?

      "Free market" economics would have said that the Ringgit should have been allowed to find it's floor, based on the forex markets.

      And if that resulted in the US Dollar hitting, say, 4.5 or 5 Ringgit, so what?

      This whole concept of a currency's "fair value" is a bunch of malarkey anyway!

      It seems like economists make up stuff as they go along!

    2. And so what?

      I repeat my contention that a currency's "fair value" is a bunch of malarkey.

      In spite of the reams of academic research and meticulously-quoted links to reports, publications and eminent persons, there is nothing that indicates what a currency's "fair value" is.

      And if that is the case, it's ridiculous to posit that a currency can be "economically sabotaged" by the nefarious-minded.

      And that's the truth.

    3. "a bunch of malarkey"? I like that....succinct yet colourful.

      Why are we so hung up on the "fair value" of currencies anyway? The Ringgit, Euro, US Dollar, Aussie Dollar, Indonesian Rupiah, Yuan etc?

      Us plebians make do with what we earn and what we have. Always been the case.

    4. @Warrior

      Fact 1: Managed float is an ambiguous term that covers everything from de facto pegs to almost free floating regimes. It's a continuum. The Ringgit could be said to being under a managed float from 1973 to 1997, but during that period Malaysia had four (five if you include the change in the soft peg from RM2.70-RM2.80 to RM2.50-RM2.60 in 1992) distinctly different exchange rate regimes. The proof is in the pudding - it was very obvious that the Ringgit was anchored on the USD in the 5 years leading up to the AFC.

      Malaysia in 1997 was at the harder end of this spectrum, with what amounted to a undeclared nominal anchor based on the USD; Malaysia in 2015 is at the very soft edge of the spectrum.

      The current IMF classification, if you're interested, is "Other Managed Arrangement", just two categories away from a free float but five categories away from a hard peg.

      Fact 2: Don't look now, but reserves fell even more in January. All the reports I'm reading are still very negative on the Ringgit and on Malaysia. There was a mild let up in selling pressure at the end of last month up to the middle of February, partly due to the big bounce in oil prices (fundamentals again) and partly due to cheap valuations tempting some foreigners back.

      Not all of the loss of reserves was currency intervention in the conventional sense, and I had a front row seat (ok, maybe third from the back, but with still a nice view). Sadly, I'm not at liberty to disclose what really went on. Suffice to say, what BNM actually did was fascinating and a bit unexpected from my point of view. I'm more convinced than ever that BNM's primary motive for intervention was liquidity-related, and not an attempt to support the Ringgit.

    5. Sigh… return from joy to this killjoy, depressing aint it?. What have you been smoking, imbibing or gorging on lately man? Mark my words, whatever going into you is ain’t good for the constitution!.... hahahaha. You see, there are fingerprints of attempted rigging all over the place but you seem to mistake them for cat’s paws or chick feet ….hahahahaha

      Is that really you or is there some ghostwriter writing the stuff on this particular thread, dude? cos it sure doesn’t sound like you! Have to say whoever it is, he/she is doing a mighty good job of stonewalling an investigation by planting doubts via feints and euphemisms and sundry “esoteria” in an influential blog that has insider access to the top guns in Malaysia going by your BNM front row seat disclosure.

      I don’t know and don’t want to speculate how much chickfeed is flowing in your trough right now, man but I sure know that Malaysia was not on any hard dick peg in 1997. And a managed float back then is not what you imagine it to be using current terminology. Let me go back a bit and leave you with Table 1 pages 4-6 here:

      So that will leave your exoneration and related ripostes out on a limb fluttering in the wind : D

      Now don’t twist Table 1, please…..we will leave it at that cos it is apparent that you and the other crap here are singing from the devil’s hymn sheet ….hahahahaha and I don’t want to be tired by another long aimless exchange seeing that our differing perspectives shalt ever twain…… the way, when did ever..hehehehe

      I was just hoping that the truth could be ferreted out as my sources say, a regional foreign entity had a black hand in what went on and panicked when they were sussed out leaving the wannabe local slit-eyed hymie holding the dunce cap…….no wonder his/her personal vendetta continues unabated….hahahaha

      Just for the road and, please, no connections with the above, a couple of years ago a NDF rate rigging scandal broke out in Singapork. We were promised a report into the investigations….but till today we are still waiting for a full one, so much for promises……hahahahaha.

      Fact of the matter is, these scams are part and parcel of the system and as long as unethical, compromised or weak-willed enforcement entities are the order of the hour, they (scams) will continue in ever greater intensity until lo behold one fine day, the whole system collapses …..hahahahaha. Only then will we find all the nexus between the various illegalities (stuff like money laundering, illicit outflows/inflows, tax evasion, etc) but what use would that be when the chicken had flown the coop. plus the chickfeed been swilled outta the trough (wink wink)

      Whatever…you or whoever ghosting these parts is doing a great disservice to the public and of course to the system itself…enough said

      2. As for that BNM ‘fascinating moves’ you mentioned, I grant that is every bit as likely as the extract below though I personally feel that the latter is the more likely over the last 8 months:

      “ Bank Negara Malaysia Governor Zeti Akhtar Aziz told reporters in Kuala Lumpur on Feb. 24 that the ringgit is “undervalued” and should return to trading in line with economic fundamentals. In a sign the central bank may have intervened to support the currency, foreign-exchange reserves dropped 16 percent in the past eight months to a four-year low of $111 billion.”

      Warrior 231

    6. @Warrior

      Warrior, Warrior, Warrior...

      You've got rigging on the brain. The outflow of funds from the foreign selldown of the equity market is more than enough to explain the drop in the Ringgit. Rigging (as in the NDF scandal) is only really profitable in relatively stable markets, not in fast moving volatile ones, where fundamentals flows can blow past the point spread faster than you can blink.

      More to the point, oil currencies (at least, those that float) across the globe have been hit in the last few months. Both AUD and CAD have depreciated even more than the MYR. More to the point, authorities in both countries have actively talked down their own currencies and cut interest rates. It's just good economic policy when faced with a negative terms of trade shock.

      No shadow writers here mate, if you look at my blog from the start, I've consistently advocated allowing the Ringgit to float with minimal interference.

      Signs of rigging? I see signs of dealers shocked off their rockers.We're hearing reports of banks already hitting their loss limits this year, in just the first two months. If you look at the currency forecasts the local and foreign banks have made in the last two quarters, they've been as caught off guard as everybody else. There's no real consensus right now - analysts are forecasting anywhere from 3.20 to 3.80. Good luck trying to rig that market.

      You missed my earlier point:

      "Managed float is an ambiguous term that covers everything from de facto pegs to almost free floating regimes."

      A "managed float" means different things to different people at different times. Some classification schemes don't even include the term. A rose by any other name smells just as sweet. The preponderance of evidence shows that the Ringgit was effectively pegged to the USD between 1988-1997. Changing the label doesn't change the characteristics.

      However, I find it ironic that you're quoting a World Bank paper (who's job is funding economic development) in making the case against the IMF (who's entire raison de'tre is balance of payments and exchange rates, and have been researching the same for the last 50 years).

      You have also stumbled on one of the more interesting lines of inquiry in economic research on FX, the difference between de jure and de facto exchange rate regimes:,5

      Have fun reading.

      On the last point, I agree with the Governor - the Ringgit is fundamentally undervalued (no surprise), though I wouldn't have publicly talked about it. I'd rather have tried to talk it down further.

      One thing I would say about BNM's "intervention": they did it in such a way as to minimise the impact on market pricing. That doesn't sound like "currency intervention" to me, more like a liquidity operation (i.e. supplying USD to those who want to leave). The balance sheet items would be identical with either, hence the ease of confusion.

    7. Oh, and before you start ranting about the NDF market and how it influences the onshore market, this year the NDF market appears to be taking the cue from the onshore market instead.

  22. On 16 February the MYR was quoted at 0.359 A$, 1.747 Renminbi, 0.245 Euro, 17.4 Indian Rupees, 35.614 Indonesian Rupiah, 0.379 SGD, 0.181 Pound & 0.280 USD.

    Are these "fair values"?

    Who says what's "fair value"? The forex markets? Hedge funds? Central banks? Arbitrageurs? "Economic Saboteurs"?

    1. Them's the truth, Sir. Like a barrel full of hooch!

    2. @anon 7.04

      Fair value is determined by economic fundamentals, of course. For a (very) short list:

      1. Interest rates
      2. Terms of trade
      3. International Investment Position
      4. Balance of Payments
      5. Income per capita
      6. Government consumption
      7. Commodity prices
      8. Inflation

      A second point is that exchange rates are by construction relative prices, not absolute prices. So all the above should be taken as differentials, not on their face value.

  23. Hahaha…I couldn’t help myself ROFLMAO reading all the latest crap even as I am packing. I never thought that in 49 years of walking on Allah’s earth, I would see the day but by gawd ….I see now that even Fair Value is ..errr…..fair game. Looks like I set a cat amongst them pigeons……hahahahaha

    To recap, Hisham inexplicably wrote an exoneration to kick off the kerfuffle. And because it was such a good exoneration that checked all the right boxes in the minds of many out to birch the MYR, we had either the usual posse of suspects throwing in their two cents of nods or another mob eager to vent their spleen on anything spelt “p-o-l-i-c-y”. And then there is this lil case of a troubling minority like me who like to see things unblinkered…hahaha

    Whatever…. I penned an alternative take that is as equally convincing and in the spirit of neutrality and truth seeking calmly called for an investigation…simple, easy peasy or as Holmes would intone to Watson “elementary” hahahahaha. Collar the suspect/suspects , drag them into the interrogation chambers, clam a couple of ACs onto their genitals and watch them croon…..or faint….hahahahaha

    But nah? The blinkered guys and gals down here cannot have that. Its after all economic policies that are fault, not noise traders or any other effing moron. Never mind the fact, there were no runs on the MYR despite the fundamentals being just as “bad” or “worse” at certain times in the recent past…….

    So we have crap oozing from all corners of the bowl. Ah’ reckon, the plausibility of my take probably triggered a hysteria of sorts, yo know that stiff upper lip indignance that spouts how dare you gatecrash our party just when the host had started things rolling.

    So cue, FV being dissed and the whole notion of markets being upended, no surprises there.

    I suggest those caterwauling aimlessly like brain dead morons do, to take five and read through the link below about what is FV all about, how it is derived etc. And if they have a smidgen of a brain cell left, keep the word “deviation” in mind whilst they struggle with the slides:

    Deviation from what? Go figure…after all you fuckheads claim to have the superior IQs to traumatize the rest of us with your pansy, girly, pondanish shit thus far……And while at it remember what Hisham said somewhere about “implied value” “long term” etc etc

    But if you guys/gals can’t figure out the above link, here is the Economist’s simplified take:

    and maybe take in this just for the kicks:

    You see, in the end, you guys/gals hogwash of tosh about FV is just a cop-out that ironically puts yer ….errr…host here in a bind as well as he had highlighted just that a fortnight or so ago.

    Why not entertain the fact that whoever (your hero/heroine, that is) was shorting the MYR got effed by the BNM and lack of support despite all the bluster and quit, beaten n whipped!!. After all he/she is NOT Soros, a true blue plain Jack Jew, who can drive a herd wild. No use pretending otherwise if whoever he/she is nothing but a scamming Chingkie “hymie” wannabe with megalomania to boot.

    Ok, now I can jet off for 10 days somewhere far from the madding crowd for some grass, girls, greenery and grog….been putting that off for a while now……hahahahahaha

    Zuo De

    Gong Xi Fa Cai (only for you and the family), you are one sane guy/gal so have a wealthy and prosperous year ahead. You are a gemstone in a sea of shit granted there are the rare occasional ones in your stock, mind you…….hahahaha.

    Andy Xie..comes to mind…great guy, very fact and reality based and by the way, an engineer who I guess, sadly wasted his talents and degree on of all things, “Economics”!!!! :

    Nothing delusional about you guys and that’s great!

    Warrior 231

  24. Andy Xie??? Hahaha....has any of his reports and commentaries surfaced in the mainstream media? Maybe the WSJ or Bloomberg or Forbes should put him on their payroll seeing as how they are all resolute capitalists and free marketeers....hahaha.

    We, who live in the real world, take exchange rates as they come. No biggie. No conspiracy theories about breaking Bank Negara.

    So, the Ringgit has tanked. Perhaps we will downgrade to Business Class from First Class or Suites....hahaha.

    The point is that any businessperson or entrepreneur worth his or her salt will learn to adapt to a world of volatile exchange rates instead of crying for Mummy.

    "Mummy" as in handouts, monopolies, privileges, quotas, subsidies etc.

    So let the "theoretical economists", hedge fund mavens and "economic saboteurs" play their games. The "real economy" moves on.

    Supported by the "black economy".... hahaha.

    1. took you five whole days since I posted to carefully rearrange your brains, try thinking straight awhile to come up with a response.

      And guess what? Whatever offal or shit you have left in your cranial cavity just hollered :

      "I am an effing stupid moron mofo with shit for brains to boot"

      loud and clear in that pathetic "diatribe" you just penned above.

      You see you dont know what you are talking about cos you have nothing but shit jammed up in your cranium after your real brains waved bye bye a long time ago.

      Andy Xie? apparently you didnt read the Wiki link because you were too scared that it would have jarred you out of your delusion back to reality.

      Anyway, I are a blithering moron who cant read anyway so why trouble you with any links in the first place...My apologies for all that trouble.

      You are the clueless, braindead, shitloaded fuckhead who loves being arseraped by all and you make good law abiding, unquestioning, uncritical proles who live a sad, delusional existence eking out a hand to mouth living in some goddamn god forsaken hovel. And keep blaming everyone else but yourself for keeping you poor, helpless and needy....awww..such poor things....quick run up mummy's you know what and hide...all she needs to do is close her legs and there is a bear hug for sunny boy........hahahahahahaha

      And I suspect crying for "mummy' is part and parcel of your inferiority complexed, mentally challenged self. After all "daddy" must be part of the "all and sundry" crowd above to be sodomised by scammers, moneylaunderers, conmen, thieves etc must be nothing to you

      And it is crap trolls like you that make the comments section a source of much thanks for the laughs, moron.

      It is good that I can still continue laughing, FOC this time, after a ten day break.

      Warrior 231

    2. Do you harbour some deep-seated resentment against "good law abiding, unquestioning, uncritical proles....."?

      Seems to me that you have something against rural Malaysia and the bedrock "heartland" Umno supporters who are, by and large, "good law abiding, unquestioning, uncritical proles".

      Of course, these are the "great unwashed" who have little or no time for fancy economic theories or meticulously-researched links to academia. Like wondering what should be the "fair value" of the Ringgit or whether 1MDB is too "atas" for their worldview.

      In this instance, being designated as a "crap troll" is a badge of honour!

  25. Just for some Sunday laughs…okay:

    For some reason, I simply love this take by this fellow:

    The PAP manifesto reminds me of my best pieces of work in college: loads of nice pics, big on fluff, a light touch on content, says a lot yet very little, somewhat convincing but actually confusing. Most important of all, we always get away with it by gaming the system hahahahahahahaha

    It neatly encapsulates everything about “hard work, sweat off brow, rags to riches, and all other similar blah” in one succinct, weighty paragraph. What a philosophical masterpiece.

    And the final line ““Most important of all we always get away with it by gaming the system hahahahaha…..” is telling, doesn’t it?

    Now that explains why after the Winsemius master planned and executed manufacturing push ran out of steam due to rising input costs and slacking productivity (all that hard work was not getting anywhere), a foreign entity ventured into financial “architecturing and manufacturing” in 1991 and had not looked back since thanks to dirt low taxes, utmost secrecy and other shenanigans, the stuff of Swiss, Hongkies and Caymanians wet dreams..... hahahahahahahahaha…and scamming the system has never been better ever since…….hahahaha.

    By the way, the chap used to work for Monetary Authority of Singapore (MAS) quoting his LinkIn profile in the selfsame link.

    And in monetary management to boot. Says a lot in so little doesn’t it?….hahahahaha.

    Me? Apart from Andy Xie, here is another good honest man…but as I say….they are one in a 1.3 billion:

    May he live to a hundred…ahem ahem…

    Warrior 231

    1. I thought that the Rocky's Bru blog had a different take on the Sarawak Report?

      Not that the alleged shenanigans in 1MDB make for palatable reading.

      But for the plebs and the proles, are they bothered about 1MDB? Or by more immediate concerns of how to cari makan and put food on the table?

      Seems to me that you've got your priorities in a twist.

  26., what are you implying?

    I take it that you are not a fan of Jho Low and his coterie?

    Maybe it's their Cristal-fuelled private jets lifestyle....hahaha.

    Obviously they aren't concerned about the vicissitudes of the Ringgit.

    Such "earthy" matters are best left to the "proles", are they not?