The end of the colonial era did not mark the end of the close economic and financial relations that had developed among Britain, Malaysia and Singapore. Both Malaysia and Singapore continued to maintain their pegged exchange rate to sterling until June 1973, and to hold the bulk of their reserves in sterling even after the devaluation of the pound in 1967. Along with other developing economies, Malaysia was caught up in the turmoil of the collapse of the Bretton Woods fixed exchange rate system and the retirement of sterling as a major reserve asset. Although Malaysia’s robust balance of payments allowed it to weather these global storms, they did pose challenges for the national government and formed part of the transition to a truly independent international monetary policy, presaged by the introduction of a national currency in 1967 and then activated by the controlled floating of the Malaysian dollar from 1973. During this period, Malaysia also played a distinctive role in the determination of how the international monetary system evolved, because of Malaysia’s importance to the development of sterling policy in London.

By Catherine R. Schenk, University of Glasgow. Prepared for The Economic and Social History of Malaysia: Celebrating 50 Years of Independence at an International Conference Organized by the Nottingham University Business School on 15 -17 November 2007 at the University of Nottingham Malaysia Campus.