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IBF 7110 Islamic Financial System and Effects of Ringgit Crash

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Some has argued that the falling or the depreciation of ringgit could be a good thing for Malaysia, since this will boost the export market. Critically evaluate the causes and impacts of ringgit depreciation within the context of Islamic Capital Markets.

Answer 

Effects of Ringgit Crash

Malaysia’s ringgit crash is an event of unprecedented importance. It is a historic fall with a record drop in the last seventeen years. The fall is mostly attributed to the fall in global oil prices which has seriously affected the countries that have oil based economies (Amirullah, and Hamid, 2017). There can be both positive and negative outcomes of the crash. The consequences of the fall in value of ringgit in the cost of Islamic capital market are as follows:

  • Fall in Stock Value: Malaysia was the only sukuk market with a global outstanding crossing $100 billion dollars. But after the ringgit crash, since the value of the currency has declined against the dollar, the value of the existing stock out of 70% is Sharia compliant (Islamic Capital Market Malaysia, 2018)shall be highly devalued.
  • Fall in Innovation: The Malaysian Islamic capital market was responsible for a number of groundbreaking innovations but after the crash of the ringgit there shall be no scope for organizations to invest into new innovative methods.
  • Stunted Growth Rate: The expected growth rate of the Islamic capital market shall fall down considerably. The ten year CGR of 11.3% (Islamic Capital Market Malaysia, 2018) shall come down.
  • Increased Foreign Investment: At this point foreign investors shall be interested in spending their revenue in the Islamic capital market as prices shall be low. This is a positive outcome and it shall create provisions for the market to recuperate after the crash and subsequently, achieve a sustainable growth rate.

References

Amirullah, M.A. and Hamid, Z., 2017, July. Does the Fall in Crude Oil Prices Really Affect the Malaysian Ringgit?. In International Conference on Applied Economics (pp. 403-414). Springer, Cham.

Islamic Capital Market Malaysia (2018). Islamic Capital Market Malaysia | Sukuk Malaysia | Capital Markets Malaysia. [online] Capitalmarketsmalaysia.com. Available at: https://www.capitalmarketsmalaysia.com/islamic-capital-market/ [Accessed 16 Nov. 2018].

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