Death to Speculators 2014: Malaysia Warns on Ringgit

Bank Negara says, "Don't tread on the MYR."

After the recent post on Russia "cracking down" on currency speculators, we now have word that the Malaysian authorities are mounting their own effort to limit currency speculation on the Malaysian ringgit (MYR) as its value declines together with most other developing country currencies given the widespread expectation that the Federal Reserve will raise interest rates on the US dollar soon. Lest you think the IPE Zone has become the Currency Speculation Zone, rest assured that there are interesting aspects to this matter of concern to developing countries the world over aside Russia and Malaysia.

Let us turn back time to 1997, when the Asian crisis was roiling the titular region. Then-Malaysian PM Mahathir Mohamad declared currency speculators the national enemy, coining the near-analogue phrase "death to speculators" which we know and love. Back then, George Soros was the big, bad bogeyman. Let's take that trip down memory lane:

Mr. Soros said: "Dr. Mahathir suggested banning currency trading. This is such an inappropriate idea that it doesn't deserve serious consideration. Interfering with the convertibility of capital at a moment like this is a recipe for disaster. Dr. Mahathir is a menace to his own country." The U.S. Treasury secretary, Robert Rubin, while saying he had not read Mr. Mahathir's speech, said at a news conference here Saturday that "currency trading is an inherent and very important function in a modern and global economy, and it is integral to global trade."

When Thailand's currency crisis caused the Malaysian ringgit and other regional currencies to crash last month, the Malaysian prime minister blamed hedge-fund investors such as Mr. Soros, whom he called "a moron." In remarks that some bankers fear could trigger another sell-off in Malaysia's currency and equity markets, Mr. Mahathir said Saturday that "quite a few people who are in the media and in control of the big money seem to want to see these Southeast Asian countries and in particular Malaysia stop trying to catch up with their superiors and to know their place."

Nowadays, however, we are back to raising the specter of unknown, unaccountable speculators who will destroy a country's economy just to make a quick buck:

Malaysia’s central bank has told lenders to guard against speculation in the ringgit after the currency fell to the weakest level in almost five years. All short-dated transactions requiring the exchange of ringgit for a foreign currency must be backed by underlying documentation, Bank Negara Malaysia said in a “stern reminder” today. The monetary authority confirmed the note.

The timing of the central bank’s notice could mean it’s “uncomfortable with the pace of the ringgit’s weakness,” said Nizam Idris, Singapore-based head of foreign exchange and fixed-income strategy at Macquarie Group Ltd. 

And, like Russia, this net exporter of energy is a loser in the ongoing slide in energy prices since its neighbors are all net importers:

Malaysia will be the sole loser among Asia’s emerging markets from the decline in crude and the country may miss its 2015 fiscal deficit target, according to Bank of America Merrill Lynch. A 10 percent drop in prices will reduce economic growth by 0.2 percentage point, economists including Singapore-based Chua Hak Bin wrote in a Dec. 1 report
.
Brent crude has dropped 39 percent from a June high after the Organization of Petroleum Exporting Countries’ decision last week to not cut production in order to shore up prices. The potential revenue loss may make it harder for Prime Minister Najib Razak to lower the fiscal deficit to 3 percent of gross domestic product next year from 3.5 percent.

Meanwhile, the ringgit's drop continues apace as its forex reserves fall:

Malaysia’s ringgit fell to the weakest level since September 2009 and government bonds retreated as a strengthening U.S. jobs market bolstered the case for the Federal Reserve to raise interest rates...“The dollar strengthened across the board following the stronger-than-expected payrolls number,” said Khoon Goh, a Singapore-based strategist at Australia & New Zealand Banking Group Ltd. “In addition, oil prices remain under downward pressure, which is also weighing on the ringgit.”

The currency declined 0.7 percent to 3.4955 per dollar in Kuala Lumpur, according to data compiled by Bloomberg. The ringgit earlier reached 3.5073, the lowest in more than five years, and has lost about 2 percent in the past four days...

Malaysia’s foreign reserves dropped 0.7 percent to $125.7 billion as of Nov. 28 from two weeks earlier, the lowest level since April 2011, according to a Dec. 5 report from the central bank.

For Malaysia, it's unfortunately the same underlying dynamics as Russia: falling energy revenues leads to not-so-veiled threats to all and sundry "currency speculators." Or, in the immortal words of Mahathir, "death to speculators--2014!"