Over the next two articles, I will examine whether fixed exchange rates (pegging it to another currency) or free-floating exchange rates (which many believe is what Malaysia is on) are best for the country. Malaysia is indeed such an economy, open to trade to a fault and yes, it is small. The other source of concern for Malaysians are interest rates. The key strategy to combat inflation is to raise interest rates, making it more expensive for borrowers. Without a deep currency market, the currency would fall to high volatility and be subject to predatory attacks, at the country’s expense.
