Mahathir Calls Currency Trading `Silly,' Advocates Return to Bretton Woods
Mahathir in an interview in Kuala Lumpur
Goh Seng Chong/Bloomberg
Former Malaysian Prime Minister Mahathir Mohamad in Kuala Lumpur.
Former Malaysian Prime Minister Mahathir Mohamad in Kuala Lumpur. Photographer: Goh Seng Chong/Bloomberg
Mahathir Calls Currency Trading "Silly"
Goh Seng Chong/Bloomberg
Former Malaysian Prime Minister Mahathir Mohamad in an interview in Kuala Lumpur.
Former Malaysian Prime Minister Mahathir Mohamad in an interview in Kuala Lumpur. Photographer: Goh Seng Chong/Bloomberg
Former Malaysian Prime Minister Mahathir Mohamad, who fought off an attack on the ringgit with capital controls during the Asian financial crisis, said currency trading is “silly” and the world should return to the Bretton Woods System of fixed exchange rates.
Currency wars are futile and the U.S. Federal Reserve’s latest quantitative easing plan will result in hot money pushing up prices in small countries, the 85-year-old said in an interview in Kuala Lumpur today. The Fed on Nov. 3 said it intends to buy an additional $600 billion of Treasuries to foster growth.
“When you lose money, you must accept that you have lost money,” he said. “When you lose money and then you go back to your house and print more money for yourself, that makes things quite ridiculous. This is money that is not real, yet this money can destabilize by, for example, going into small countries to invest in stock exchanges.”
Mahathir, who stepped down in October 2003 after 22 years in power, drew international criticism when he imposed currency curbs in 1998. He called George Soros a “moron” and accused the billionaire investor of attacking the country, while Soros responded by describing the Southeast Asian leader as a “menace to his own country.”
Capital Controls
More than a decade later, the World Bank has said countries in the region may need capital controls to protect against destabilizing inflows caused by U.S. monetary policy. Asian economies may need to respond to the Fed’s easing with short- term, targeted controls to address asset bubbles in their stock, currency and property markets, World Bank Managing Director Sri Mulyani Indrawati said on Nov. 9.
“We’re seeing big swings in Asian currencies because people are concerned over a slew of capital control measures,” Enrico Tanuwidjaja, a Singapore-based economist at DMG & Partners Securities Pte said in a telephone interview today.
South Korea and Indonesia have already adopted measures to manage capital flows, while China, India and Australia have raised interest rates to limit inflation pressure.
“Currency trading doesn’t create any jobs or spin off any business,” Mahathir said. “What we should do is stop this silly thing called currency trading,” which would remove one source of “instability,” he said.
Instead, nations should return to the Bretton Woods System first established after World War II, under which countries were obliged to adopt monetary policies to maintain their exchange rates within a fixed range linked to gold.
Gold Standard
“This idea that the market should fix the exchange rate is a new thing,” Mahathir said. “A currency war is not something that is going to overcome the present crisis. The result is a very unstable exchange rate system in the world.”
World Bank President Robert Zoellick said in a Financial Times column last week that Group of 20 nations should once again consider using gold as an international reference point of market expectations about inflation, deflation and future currency values as they reform the global monetary system.
Mahathir also said Malaysia’s ringgit should be repegged and criticized current Prime Minister Najib Razak’s September proposal to allow off-shore ringgit trading, which would remove the nation’s remaining control from the Asian financial crisis.
“I think the government came up with this idea at the wrong time,” he said. “I think that the government may have second thoughts now, because if everyone else is controlling their currencies and you allow your currency to be manipulated by the market you will suffer.”
Joint Measures
Asian nations may undertake joint measures to prevent excessive speculation in their currencies, Thai Finance Minister Korn Chatikavanij told reporters in Bangkok on Nov. 4. Malaysia’s central bank Governor Zeti Akhtar Aziz said last week there may be a joint effort by governments in the region to manage capital flows.
The region’s currencies have climbed against the dollar this year as the region’s growth outpaces the rest of the world. The Malaysian ringgit gained 9.3 percent this year, the best performer after the Thai baht among the 10-most active currencies in Asia outside of Japan. Malaysia’s benchmark stock index climbed to a record on Nov. 8.
To contact the reporter on this story: Barry Porter in Kuala Lumpur at bporter10@bloomberg.net; Haslinda Amin in Singapore at hamin1@bloomberg.net
To contact the editor responsible for this story: Chris Anstey in Tokyo at canstey@bloomberg.net
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