Measures Taken by the Malaysian Government During the Asian Financial Crisis in 1997

Topics: Monetary policy, Debt, Malaysia, Foreign exchange market / Pages: 8 (1869 words) / Published: Oct 5th, 2010
Measures taken by Malaysian Government during the Asian Financial Crisis in 1997.
There are numerous measures taken by the Malaysian Government during the Asian Financial Crisis in 1997. Nevertheless, in this paper, we only summarize the important and significant measures taken by the Malaysian Government. A more detail information will be revealed in the appendix added.
Measures Taken by the Malaysian Government during the Asian Financial Crisis 1997:
I). Fixed Exchange Rate Mechanism (Pegged Currency)
The far most efficient measures taken by the government of Malaysia to counter the crisis is the implementation of a fixed exchange rate regime from the previous free float exchange rate regime. The underlying factor that contributes to the crisis is the devaluation of Thai Baht which cause repercussion effect throughout the Southeast Asia region. The devaluation of Thai Baht causes a loss of confidence in the region currency stability which in turn pressures the Ringgit to devalue as capital flight happen.
Prior to the Asian Financial Crisis 1997, Malaysia was maintaining a free float exchange rate system. In a free float exchange rate system, Malaysia authority was able to enjoy a greater flexibility in implementing fiscal and monetary policy. Nevertheless, the Asian Financial Crisis 1997 has forced the authority to evaluate the viability of a free float exchange rate system when Malaysia was exposed to currency crisis.

After much turbulence for a year, the authority found out that a stable and conducive environment for the implementation of fiscal and monetary policy is vital. Therefore, Government of Malaysia decided to convert from a free float exchange rate to a fixed exchange rate regime on 2 September 1998.

Persistent currency attack and speculation activities have caused turbulence in the foreign exchange market and in turn impose adverse impact on the aggregate economic activities. Currency stability will provide much needed sentiment boost

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