Universiti Teknologi Mara senior lecturer Firdausi Suffian said a dollar peg would mean that interest rates would be tied to those in the United States.
“So if the central bank wants to reduce interest rates to stimulate the economy, they would not be able to do so as they would be constrained by the currency being pegged.
“And the US is currently tightening their monetary policy due to concerns over an overheating economy, which means their interest rates would be high,” he told FMT.
He said a peg to the US dollar was a temporary solution to the falling value of the ringgit on foreign exchange markets, as Malaysia experienced at the height of the Asian financial crisis in 1998.
Mahathir, who was then prime minister, imposed exchange controls and pegged the ringgit to a basket of currencies, chief among which was the US dollar.
Carmelo Ferlito of the Center for Market Education said he agreed with Bank Negara Malaysia’s statement that pegging the ringgit was a bad idea.
Unlike in the 90s, Malaysia was not experiencing a financial crisis, he said, while the dollar remains the preferred reserve currency in delicate moments like the present one.
Despite recurrent discussions about ‘de-dollarisation’, to move away from the US dollar as the world’s reserve currency, a credible alternative has yet to emerge, he said.
Firdausi and Ferlito both said the best way for the government to strengthen the ringgit is by setting up clear and consistent “pro-market” policies that encourage both domestic and foreign investors to invest in the country.
“The 12th Malaysia Plan review, new industrial master plan, national energy transition roadmap, Madani economic plan, and the 2024 budget are critical to expand our productivity. These policies set the tone to expanding the export industry and value-added production,” Firdausi said.
Last month, the ringgit slumped to almost RM4.8 per US dollar, the weakest level since January 1998, amid fears of a slide to a record-low RM5 per dollar.
Mahathir had made a similar suggestion last year about pegging the ringgit. In August 2022, then finance minister Tengku Zafrul Aziz also cited the overnight policy rate when explaining why Putrajaya would not implement a “highly risky” move by pegging the ringgit.