25 August 2009

Models, realism and the Malaysian ringgit

Today's Mint has a nice article by Anantha Nageswaran on currency models and realism. One excerpt:

...the cause of disagreement between the International Monetary Fund (IMF) and Malaysia as the former conducted its Article IV consultation with the latter this year. IMF said the Malaysian ringgit was undervalued and needed to appreciate while Malaysian authorities demurred on the timing and perhaps on the magnitude of the suggested undervaluation itself.

There has to be certain sympathy for the Malaysian point of view. In Asia, it is hard to see many countries allowing their currencies to strengthen against the US dollar unless China sends a strong signal that it is about to let market forces dictate the value of the renminbi against the US dollar. That is not on the horizon and is unlikely to materialize any time soon.

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