Falling International Cash Reserves, Should The Rakyat Be Worried?

LAST month, Bank Negara Malaysia announced that as at November 30, 2016, its international cash reserves fell to RM399.6 billion compared to RM407.8 billion before.
What does this mean? Should the rakyat be worried? What can be done?

Why are the reserves falling?

First of all, the rakyat must understand that the cash reserves are falling not because the Malaysian economy is weak. The reserves are falling as it is being attacked by currency speculators.

Who are the currency speculators?

Currency speculators are people who plays the foreign exchange market and spread bad and false news about Malaysia. As an example, they will spread news that Malaysia will be bankrupt. Eventhough it is not true, some will believe it and become worried. As a result, the ringgit will fall.

But before the ringgit falls, currency speculators already have made their profit. So the ringgit is weak not because our economy is soft but due to the activities of these irresponsible currency speculators. So the rakyat should not worry because the weak ringgit is not due to the weak economy but due to these currency speculators. Our economy is still strong and usually the activities of these currency speculators will not last long.

Bank Negara is defending the ringgit

The cash reserves is falling because Bank Negara Malaysia is doing all it can to defend the ringgit which is currently being attacked by currency speculators. So how does Bank Negara defend the ringgit?

The central bank as the guardian of our economy, will pump money into the foreign exchange
market to boost liquidity. Bank Negara said in a statement last month that it spent almost US$2 billion from the reserves to stop the ringgit from sliding.

Bank Negara pumps ringgit into the system so that the sentiment can be strong again. When the sentiment is strong, the rakyat and investors can believe in the ringgit. When the ringgit is strong there will be strong demand.

When demand is strong, Malaysians will have cash in hand and spend a lot more. Once they have cash in their hands, they will be able to spend and this will help support the
domestic economy.

When the domestic economy is strong, the overall economy will be strong too.
Eventually, the rakyat will be able to earn an income, spend with their families and ultimately
support the economy.

Bank Negara Malaysia tells exporters to keep 75 percent of their money in ringgit

During the challenging economic conditions currently, exporters are doing very well because with the strong US dollar, exporters earn more ringgit. As an example, a company which sells clothes to Oman, will now earn RM4,400 from RM3,800 before.

Bank Negara announced last week that one of the ways to protect the economy is by telling the exporters that 75 percent of their income must be kept in ringgit. What this means is that, if exporters earn RM100,000 a month, RM75,000 must be retained in ringgit.

Exporters cannot convert all their RM100,000 into US dollar or other currencies. This is a good move because by doing this, the faith in ringgit will be strong again. In this way, there will be no panic and the ringgit’s value will continue to be strong. And the rakyat do not have to worry and continue to go to work and provide a living for their families.

International cash reserves can go up again

The rakyat must realise that while the reserves can go down, it can also go up. It will not go down all the time. So when the economy is doing well, Bank Negara Malaysia will continue to top up the reserves.

Bank Negara Malaysia reserves can rise when exporters keep 75 percent of their profit in ringgit. So the rakyat must not worry because Bank Negara is doing all it can to ensure that our reserves are strong.

Once the reserves are strong, the economy will not weaken easily and the rakyat can continue to help the domestic economy by spending a lot more in the country.

Malaysian economy still strong

World Bank Country Economist Shakira Teh Sharifuddin said as the organisation responsible in managing the country’s monetary policy, it was the central bank’s duty to implement measures to stimulate the weakening ringgit.

She said that despite the falling reserves, Malaysia’s economic outlook is still strong and is
projected to trend upwards until 2018, driven by the rakyat’s spending and internal demand.

“Malaysia’s economy is forecast to grow by 4.2 per cent this year, followed by 4.3 per cent next year and 4.5 per cent in 2018,” said Shakira.

So the economy is still strong and the rakyat should not be worried over the weak international reserves. The rakyat should focus on earning their living and continue spending the ringgit with their families on holidays or go the shopping mall as this will stimulate demand, make the ringgit strong and push up the economy.

Nik Haikal Nik Ibrahim is an independent analyst and Malaysian Access reader. Article written is strictly his personal view. Malaysian Access does not necessarily endorse the opinions given by any third party content provider.

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