This article first appeared in Forum, The Edge Malaysia Weekly on March 2, 2026 - March 8, 2026

Holidaymakers are rejoicing, importers suddenly see their balance sheets in the greenest shades ever and those sitting in the central bank can heave sighs of relief after spending months using varying monetary mechanisms to stabilise the ringgit.

The strengthening of the ringgit has been widely interpreted as a sign that Malaysia’s economic fundamentals are showing. After a prolonged period of currency weakness, the recent appreciation is seen as a reflection of stronger growth prospects, rising foreign investments and renewed confidence in the country’s policy direction. In macroeconomic terms, this narrative is largely correct.

Yet exchange rates do not operate in isolation from society. A stronger currency may signal credibility to markets, but its implications for households, firms and long-term development are far more complex. The question, therefore, is not whether the ringgit is strengthening, but how that strength is transmitted through the economy, and who ultimately benefits from it.

Part of the recent appreciation reflects a correction from earlier undervaluation. Malaysia’s currency had weakened beyond what domestic fundamentals alone would suggest, weighed down by global monetary tightening, capital outflows from emerging markets and prolonged uncertainty. As growth accelerates and investment momentum improves, the ringgit’s recovery comes as the expected value reflects closer to the real value. In that sense, the current movement is more structural than speculative.

However, currencies are not neutral prices. They shape purchasing power, firm behaviour, asset values and distributional outcomes. A stronger ringgit changes the economic experience of different groups in different ways.

For households, the most immediate channel is the cost of living. Malaysia remains highly dependent on imports for consumption. In particular, the import of consumption goods amounted to RM120 billion in 2025, and food imports constituted around 60% of total consumption. A firmer ringgit therefore helps ease imported inflation and improves purchasing power, particularly for urban middle-income households whose consumption baskets are more exposed to foreign goods. After years of elevated living costs, this relief is tangible.

But this benefit is not evenly shared across society. Households at the lower end of the income distribution tend to spend most of their income on locally priced essentials such as food, rent, utilities, transport and basic services. These items are not heavily affected by exchange rate movements. As a result, when the ringgit strengthens, the direct gain to these households is limited. They may see slightly cheaper imported goods, but these typically form a smaller share of their total spending basket.

By contrast, higher-income households, which consume more imported goods, benefit more directly from a stronger currency. Their purchasing power rises in a more visible way. This creates an uneven distribution of gains.

For workers in export-oriented sectors, a stronger ringgit can translate into indirect but tangible pressure. When export revenues are earned in foreign currency, but wages and operating costs are paid in ringgit, firms experience margin compression. Workers in smaller firms are particularly exposed, as these businesses often lack the financial tools to hedge currency risks or diversify markets. While the macroeconomic narrative may signal currency strength as a sign of economic health, the labour market adjustment can be more restrained and uneven.

At the firm level, the effects diverge depending on business models and scale. Import-dependent firms benefit from lower input costs, particularly those sourcing foreign intermediate or final goods. Larger corporations and multinationals, with diversified revenue streams, stronger balance sheets and better access to financial instruments, are generally more resilient to exchange rate movements. Smaller exporters, by contrast, often operate on thinner margins and have limited capacity to adjust prices or hedge exposures.

This is where exchange rates intersect more subtly with labour outcomes. A stronger ringgit does not automatically translate into higher wages, better job quality or stronger income mobility. Unless productivity rises in tandem and firms adjust compensation accordingly, currency appreciation primarily improves purchasing power through cheaper imports rather than through structurally higher earnings. The result is a consumption boost for certain groups, while underlying wage growth and overall quality of living remain largely unchanged.

For middle-income economies, this creates a familiar paradox. In the short term, currency appreciation helps contain imported inflation, supports domestic consumption and strengthens headline macro indicators. Yet without deeper productivity gains, the currency’s strength can mask structural weaknesses. A strong exchange rate in the absence of rising productive capacity risks entrenching a growth model that feels stable but lacks resilience.

More broadly, Malaysia’s development trajectory has long been anchored in capital accumulation, through infrastructure expansion, industrial upgrading and large-scale investment inflows. This model has delivered growth in output and exports, but the transmission of productivity gains to wages has been uneven. As a result, headline growth has often outpaced improvements in household earning capacity.

Within this structure, a stronger ringgit can temporarily ease cost pressures by improving import affordability, yet it does little to address the underlying constraint, that is, the limited diffusion of productivity into sustained wage growth.

None of this suggests that a strong ringgit is undesirable. Currency stability is a public good. It reduces imported inflation, anchors expectations, lowers external vulnerability and enhances policy credibility in the eyes of investors. But exchange rate strength should not be conflated with inclusive economic progress. A firmer currency improves purchasing power at the margin. It does not, by itself, raise the productive capacity of workers or firms.

What ultimately determines long-term living standards is productivity-linked wage growth. When wages rise because workers produce more value per hour, income gains are sustainable and compounding. They expand the tax base, support domestic demand, and allow households to accumulate savings and assets. In contrast, gains that stem primarily from favourable exchange rate movements are externally contingent and reversible.

This distinction is particularly critical for a middle-income economy. Escaping the middle-income trap requires sustained improvements in total factor productivity, not just higher investment volumes or episodic currency strength. It requires effective absorption of skills into high-value sectors, diffusion of innovation beyond a narrow set of firms and labour market institutions that translate firm-level gains into broad-based wage growth.

Doris Liew is an economist specialising in Southeast Asian development

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