THE ringgit’s continual depreciation against the US dollar will eventually lead to the local currency being rejected for all payments, Dr Mahathir Mohamad warned today.

The two-time prime minister, who introduced pegging the ringgit to the dollar during the 1998 Asian financial crisis, said devaluation will only lead to higher cost of living.

“Eventually the local currency would be rejected and dollar would be used in payment of hotel and restaurant bills.

“Local currency would be rejected for all payments even for sales of valuable items,” he said in a statement.

He said the ringgit’s value was less than the depreciation during the 1998 financial crisi.

“Where before we needed RM 3.80 to buy a dollar’s worth of imports, now we need RM4.70,” he added.

The ringgit was trading at RM4.51 to a dollar this morning.

Dr Mahathir said that once a currency depreciates, it will never recover its previous value.

“Depreciation makes us poor. Continuous depreciation undermines the value of investments in shares or projects.

“Depreciation leads to dumping of shares and investments by foreign investors. It leads to selling out the shares.

“This in turn leads to further depreciation of the ringgit. Loans taken in US dollar cost more to service and repay.

“Manufacturing costs will go down but any upward revision in wages will negate the lower cost of manufacturing,” he said.

Dr Mahathir was prime minister from 1981 to 2003, and became prime minister again from May 2018 to February 2020.

The ringgit was pegged to the US dollar from 1998 to 2005, and Bank Negara Malaysia (BNM) had, on July 21, 2005, shifted to a managed float system for the ringgit.

Dr Mahathir had previously called for the ringgit to be pegged to the US dollar to fight inflation.

In July, Dr Mahathir said the ringgit should no longer have its value determined by the open market, but should be pegged again.

“Like in the past, we (Malaysia) saved the country and other countries when the ringgit currency exchange rate was fixed at RM3.80 to one US dollar (while facing the 1998 Asian financial crisis).

“Not only were we saved, but all other countries also benefited from this.

“But now we do not take care of the currency value. Then, there are those who deliberately bring down the ringgit’s value. When that happens, we become poor as the purchasing power reduces,” he was quoted saying by Sinar Harian.

However, the proposal was rejected by the government, BNM and economists. – November 16, 2022.