Disentangling from Sterling: Malaysia and the End of the Bretton Woods System 1965-72

Abstract

A decade after independence, the Malaysian government and central bank were faced with a series of challenges that forced them to develop an independent policy, leading to the end of the historic role of sterling in their international monetary regime. Like some economies today that are faced with accumulated reserves largely comprised of a depreciating currency (now the US$), Malaysia had to disentangle itself from sterling at a time when there were no clear alternatives since gold was scarce, the US$ was weak and Germany, Switzerland and Japan resisted the use of their currencies as national reserves. This paper uses new archival evidence to show that external obstacles as well as some misjudgement meant that this was only achieved in June 1972, 15 years after Merdeka. This process also reveals new evidence about the post-colonial relations between Malaysia and Britain and sheds new light on the neo-colonial interpretation of the first decade of independence.