By M. Bakri Musa

Chapter 5: Understanding Globalization (Cont’d)

Trading in Money

Malaysia cannot modernize its financial sector and capital markets in part because its leaders are stuck in the pre-globalization mindset, especially in their attitude towards money and capital. While to consumers everywhere money is now simply a convenient medium of commercial transaction, to Mahathir and other Third World nationalists it assumes a more important symbolic function. Currency represents the nation’s sovereignty. It is instructive that one of the first orders of business for many newly independent nations is to declare a new currency or to rename its old one. Malaysia has the ringgit, and to symbolize its new beginning, prints a portrait of its king on the paper notes. Money is no longer simply money, rather a powerful symbol of the nation’s sovereignty.

It is this symbolic attachment to the currency that irrationally dictates many economic policies. Governments often go to extreme lengths to defend the value of their currency when market conditions dictate otherwise, as happened in Thailand and Malaysia during the 1997 crisis. They forget that the value of a currency is a reflection of consumers’ and investors’ confidence in the underlying economy. A weak economy will have a weak currency, regardless of the nationalistic frenzy used to whip support for it. Malaysia lost billions and nearly exhausted its foreign exchange reserves in the early part of the 1997 economic crisis trying to defend the value of the ringgit, only to admit finally that the market was correct.
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