Nobel economics laureate Robert Mundell yesterday said Malaysia should retain its ringgit peg to the US dollar and that China was not likely to revalue its currency within the next 12 months.
Mundell, who was awarded the Nobel prize for economics in 1999, said that despite mounting international pressure on Malaysia, and barring global turmoil, "I don't think that Malaysia should change its currency policy."
"It should continue to be pegged and it should be continued to be pegged at the current exchange rate," he said at an economic forum.
"The ringgit with the dollar has been appreciating over the past eight months so even if there was an argument [for change], a year ago, that seemed strong, it is much much less strong today now that the dollar has recovered," he said.
He said the peg had been a "win-win policy for Malaysia" and was one of the reasons for Malaysia's comparatively quick recovery from the Asian financial crisis of 1997 to 1998.
Mundell also said that China was not likely to succumb to international pressure to revalue its currency.
"I do not believe the Chinese are going to move the yuan ... I think they will basically keep the yuan fixed and gradually move toward convertibility as they move up to the Olympics [in 2008]," he said.
"I know there is a lot of pressure on China to make this move but I would not bet on the fact that they will succumb to that pressure. I believe they will resist it and that a year from now, the renminbi-dollar exchange rate will be the same as it is today," he said.
"Most of the international authorities have been saying that it is in China's interests to revalue but China doesn't believe that. Whatever is the case, China should be able to decide what's in China's interests," he said.
Mundell said that if, however, China did revalue the yuan, Malaysia should not follow suit because Malaysian goods would be then be more competitive "and it would facilitate the continued accumulation of dollar reserves which is in Malaysia's interest."
Malaysia's ringgit has been pegged at 3.80 to the dollar since the Asian financial crisis and speculation has been growing that it will be revalued against the US currency soon.
However, the government has insisted that Malaysia would not adjust its currency peg for now.
Former premier Mahathir Mohamad, who controversially pegged the ringgit and imposed capital controls in 1998 to insulate the country from the fallout of the Asian crisis, has joined a growing chorus of calls for a review.
Speculation that China may adjust its own currency peg and allow the yuan to rise has also lent strength to the belief that Malaysia might follow suit.
The government has previously said it would review the peg if there were to be a swing of 20 percent either way in regional currencies against the dollar.