Writer says in risk management terms, a loss is not in and of itself a symptom of poor risk management, let alone indicative of speculation and gambling. I’ve been following the exchange between Datuk Johari Ghani and Tun Dr Mahathir Mohamad with much interest and a hint of amusement at this latest rebuttal by Johari. Forex malaysia today no holds let me break down the real issue at hand, so that we might put the events of 1992-1993 and 2013-2015 in their proper perspective and compare them to better judge between right and wrong.
Managing the country’s reserves has almost always been largely synonymous with managing our foreign exchange reserves. For the layman’s benefit, foreign exchange reserves are accumulated in the capital account of the balance of payments when we receive foreign currency for export of our goods and services overseas. Theoretically, the value of our exports and imports should equal the value of our foreign exchange earnings plus other financial instruments and other reserves such as gold. Therefore, when the ringgit value suddenly increases or drops, this causes an imbalance of payment due to timing between delivery of goods and payment for the goods, which is contracted at the earlier rate.
However, the value of the ringgit is determined not just by economic trade value but more so by external factors such as speculative activities and global investment activities. Because of this, central banks like BNM typically have an in-house foreign exchange department in charge of trading in foreign currency forward contracts, in anticipation of the future value of the currency given the expected economic activities of the nation as a whole. BNM senior management endorsed by its board, and second, in the risk event probability and severity causing any loss. Going back to Datuk’s contention that the 1992-1993 forex event exceeded risk parameters such that it is considered gambling, I would like to point out the circumstances pointing to the heightened risk of the time, which Datuk has conveniently excluded from his rebuttal.