The Art Of Exiting A Peg: The Case Of Malaysia

. The switching of exchange rate regimes may have a significant impact on the
macroeconomic fundamentals of the economy. The study evaluates Malaysia’s
macroeconomic fundamentals to determine whether Malaysia has exited the pegged regime
in an orderly manner during the 1997 Asian financial crisis. Based on visual impressions and
the analysis of selected macroeconomic fundamentals for the period 1998 to 2005, Malaysia
fits the general pattern of an orderly exit with a gradual pace. The next challenge for
Malaysia is to maintain a credible regime that is consistent with the underlying economic
fundamentals and sustain post-exit growth performance, especially during currency crises.
Exchange rate flexibility is still an important determinant in the growth of international
financial markets, especially for emerging market economies.
Keywords: Exchange rates policy; orderly exit; peg regime; flexible regime; de facto