There is an average of one major currency crisis in the world
every 19 months. This decade alone witnessed three distinct regional waves of currency
crises: (a) Europe in 1992-3, (b) Latin America in 1994-5, and (c) Asia, which started
in 1997. Unlike the era of the early 1960s under the Bretton Woods system of fixed
exchange rates when international capital flow was severely controlled, the large
sums of money that now move across borders and provide more countries with international
finance, also drive currency crisis.
Even with the best economic management, small open economies
remain vulnerable. A small open economy is vulnerable to sudden changes in sentiment
that could swing from ëirrational exuberanceí to ëirrational pessimismí.
When there is instability of beliefs, there could still be
the run on currencies even if countries had sound financial systems and good policies.
If, however, the countries are linked with weak financial sectors, high levels of
corporate debt, and lack of transparency, they become even more vulnerable to attacks.
While it is not within the power of any one country to prevent the occurrence of
future attacks on currency, the adoption of good policies would certainly make countries
less vulnerable and the effects suffered less severe.
In the later chapters, this Recovery Plan will present policy
measures to strengthen the ringgit and the financial system, as well as improve the
level of transparency and corporate governance. These measures are intended to ward
off the occurrence of future attacks, or at least minimise the severity of the adverse
effects should such attacks occur.