Exchange Rates and the Policy Trade-Offs

Most Muslim countries, being commodity producers have witnessed serious pressure on their currencies arising from a widespread fall in commodity prices. While none of the GCC currencies, all of which are pegged to the USD, appear at risk of devaluation, currencies of countries like Malaysia and Indonesia have come under intense pressure. One would have thought that the worst hit would be those depending on one or a narrow group of commodities. Those with a manufacturing based ought to be impacted less. Yet, this is clearly not the case. The GCC countries that depend almost entirely on a single commodity export; oil appear to have had much less pressure on their currencies than more diversified economies like Malaysia, which brings us to the interesting question of what exactly are excha...