The ringgit is depreciating. This may result in Malaysian exports becoming cheaper. But it also means the imports cost more, and this results in a higher cost of living.
The answer may be to increase the minimum wage. Umno youths are suggesting that the minimum wage should be RM2,000. This will increase the cost of production and export prices. We may become less competitive.
But if there is an increase in productivity, the increase in the minimum wage will not increase the cost of production.
How do we increase productivity? We can do so by improving efficiency. We can also increase productivity through automation and robots. Workers can be trained to operate automated machines and robots. They should also learn to service, maintain, and repair machines.
But the continued devaluation of the ringgit would increase costs. The gains gained through greater efficiency and investment in automation and robots would soon be lost.
Bank Negara and the government are against fixing the exchange rate. This would be against international practice. We must practice international norms.
Many people believe the ringgit is undervalued. The reason why it is depreciating is because currency traders are selling ringgits and making a lot of profits from their trade.
Why should Malaysia help currency traders make money out of currency trading? Why should Malaysia accept being made poorer so the currency traders can make money?
I do not think we should. I do not think we should suffer from increasing poverty simply because we want to be loyal to international norms. I think we should give priority to our financial stability and our economy.
What I am suggesting is that we should fix the exchange rate as we did during the financial crises of 1997-1998. Remember how the devaluation of the ringgit stopped? Remember how we recovered? And even other countries were able to avoid the depreciation of their currencies being manipulated by the currency traders.
There would be problems, of course, as there were when we fixed the exchange rate before. But we had set up special committees to deal with refinancing banks, non-performing loans, and the payment of debts. The people who handled these problems are still around.
So why not consider fixing the exchange rate to solve the problem of the ringgit? We have enough savings and reserves in foreign currency, including the USD, to finance imports.
So why not?
Dr Mahathir Mohamad is a former prime minister of Malaysia.
The views expressed in this article are those of the author(s) and do not necessarily reflect the position of MalaysiaNow.