I was talking to a friend this morning and she told me she has lost all hope of our Malaysian economy and the Ringgit recovering any time soon.
She showed me a newspaper cutting, reported by The Star today. Seeing her being sad and all I tried consoling her, saying, “don’t worry, things will get better, what goes down will come up, it’s only a matter of time”. She just gave me a cold smile and shrugged her shoulders, as if she knew I was just trying to calm her down or something.
Anyway, this situation we are in today, where the Ringgit has been on the decline against the greenback is a good example of how vulnerable fiat currency can be and why its important to park your money or a small portion of it out of the country.
There is a saying, don’t put all your eggs in one basket.
First, let’s see why I think the Ringgit has weakened and will continue to spiral downwards, may be playing in the range of Rm4.50 – Rm5 per USD right till the end of 2017. At the end of this post, I’ll reveal what I am doing to hedge against Ringgit’s weakening state and if you want, you too can do the same.
Donald Trump’s win in the recent US election.
We all know since Trump won and became President of US (I was really praying he would lose), it fueled expectations for the roll-out of fiscal stimulus proposals such as tax cuts that would bolster economic growth and inflation, therefore forcing the US Federal Reserve to step up the pace of interest rate hikes.
As a result, the US dollar strengthened against most global currencies and yields on US Treasury’s spiked, sending investors to re-adjust their positions out of emerging markets.
BNM clamping down on currency speculators.
According to a report in Channel News Asia, the Ringgit was particularly hardest hit compared to all other Asian currencies due to the fact that foreigners owned more than 40 per cent of Malaysia’s government debt, the highest percentage in Asia.
Then last week, Bank Negara Malaysia (BNM) requested foreign banks to stop the trading of ringgit in the offshore non-deliverable forwards (NDF) market.
I’m sure you heard about this and saw the announcement in Maybank2u website. When I saw this, I immediately knew this is not good news for us Malaysians and the business community in general. I also thought, Maybank officials very smartly worded the announcement.
Even before Trump’s upset win, the ringgit was already under a lot of pressure from weak oil prices, depleting foreign exchange reserves, slowing economic growth and a political scandal in the country over Malaysia’s deeply indebted sovereign fund.
According to a CNBC news, investigations and court cases are still ongoing globally into allegations that billions of dollars were looted from 1MDB. The long-running scandal has included allegations that diverted funds flowed to Malaysia’s Prime Minister Najib Razak’s personal bank account and to his stepson, Riza Aziz, whose company, Red Granite Pictures, produced the film “The Wolf of Wall Street.”
Najib, Riza and Red Granite Pictures have all denied wrongdoing. (Bloody politicans!)
So now, comes the question, what am I doing to absorb the affects of the Ringgit’s decline?
Here’s what I’m doing.
- Spend less and save more.
I’m not spending unnecessarily. I try to save as much by eating at home and putting a hold to by monthly shopping. So, eat out less, cut down on the shopping (ladies :), put a hold to that renovation guys and buy groceries in bulk from hypermarts.
- Place a portion of your funds in a stronger currency.
I have a USD account in a Singapore bank. How this works is, you can open a foreign currency account in Singapore (in any of these currencies SGD, USD, AUD, CAD) and keep on topping up that account every single month. Yes, you may lose in the exchange a little but in the long run because these currencies are way stronger than the Ringgit (and stable), you will gain.
- Buy Bitcoins and keep.
This is my favourite. For those who are not so familiar with this, just to share, Bitcoin is a digital currency which is traded on the FOREX exchange. Right now, 1 BTC = Rm3,546.69 (as of 19/12/2016) if you looked it up in XE.com. You don’t need to buy one Bitcoin. You can even buy half or a quarter of a Bitcoin and store safely in your digital wallet on your phone. Psst, the price of Bitcoin is going up.
- Invest in Bitcoin crowdfund mining.
This is a bit tricky but I’ll try to explain briefly. There are 2-3 Bitcoin crowdfund companies in the world that allow regular people like you and me to buy shares in their company. The way this works is, you buy a small share of say USD1000, and the company purchases super computers that will be used to compute Bitcoin transactions (which are recorded on the Blockchain in real-time). And then, when the company gets their Bitcoin reward for the day, the profits are split and given shareholders equally. Brilliant right?!
- DON’t put you money in local savings or FD (fixed deposit) accounts!
The FD rates by local banks here are really pathetic! Sorry, but I just felt like saying it. Do you banks in India are giving close to 12% FD rate? Ours is extremely low (around 3.2-3.5% per annum). Next, our inflation rate is very high (something like 5%-5.5% per annum). Meaning, your money in an FD account will definitely depreciate faster and it’s value will be lesser by the time your FD matures in 3,6,9 or 12 months.
These are just some pointers for you to chew on. So now you know, why I’m not too worried about the ringgit’s decline.
Tell me, what are you doing (apart from the above) to hedge against the Ringgit’s decline? Would luv to hear your views 🙂