Finance Minister Anwar Ibrahim was sacked in 1998 when he failed to crack down on local speculators in RM, Bank Negara Chief making the same mistake!
Although there may have been no volatility in ringgit Malaysia (RM) since Russian President Vladimir Putin
resolved, on Thurs 24 Feb 2022, to end the civil war in eastern Ukraine, the Malaysian currency continues to fall steadily. The Bank Negara Governor must be SACKED, like Finance Minister Anwar Ibrahim in 1998, if the ringgit declines from USD1 to RM5. The excessive speculation in RM, even if there’s no volatility, must be discouraged so that morale remains high and USD1 to RM5 can be avoided!
We need the brightest and best, from around the world, to lead the way for all. The times have changed since the Pandemic came in late 2019. The riff-raff can no longer use the politics of their sheer numbers and voting for a living — and probably not paying taxes — to squat on the brightest and best working for a living and paying taxes. Read here.
Paper money is intrinsically worthless i.e. it can’t be eaten on its own. It’s the idea behind it, i.e. public confidence, that gives it value. For example, if a seller accepts RM10 for goods and services provided, it’s in the belief that a third person will accept the same RM10 in exchange for other goods and services. The number of times the same RM10 circulates, i.e. exchanging and going from one hand to another, shows the velocity of circulation. It’s the velocity that makes up the amount of money in circulation.
If there’s too much money in circulation, and the demand for goods and services exceeds supply, there will be inflation. The government must focus on supply side economics to bring about a balance in the economy i.e. supply and demand being at an equilibrium.
Sanctions Hit RM Hard
Washington’s imposition of sanctions against Russia, particularly in the use of the US$, has affected Malaysia in more ways than one. It has disrupted the global supply chain and international logistics, already reeling from the effects of the two-year-long Pandemic brought by the novel Coronavirus.
If there’s no need to peg the ringgit to ensure no volatility, the steady fall in the currency must be addressed. In the present forex market, there’s a case for pegging the ringgit within a narrow range . . . US$1 to RM4.40 and US$1 to RM4.60 to discourage further speculation. This will help prevent the RM from falling further from USD1 to RM5 unless Bank Negara isn’t against continued speculation and depreciation. In that case, the gov’t must be prepared to double annual subsidies to RM140b from the present RM70b and announce COLA (cost of living allowance) for all workers. It has been said that even RM70b is unsustainable.
The USD falls as speculators unwind positions, rises as they build up positions. Very few probably make money since speculation may be all about gambling. Many may even lose by not speculating in the forex market or stock exchange.
The return of tourism to the pre-pandemic levels and foreign investments in the stock market — i.e. if they can make capital gains — will see the ringgit gain against the USD and SGD. FDI (Foreign Direct Investment) inflows will also help with the exchange rate.
Bring Back Assets Abroad
GLCs and GLICs must be encouraged to bring back assets abroad and invest in the local stock market. The act of bringing back assets abroad will increase demand for the ringgit and help strengthen against the USD. Shares in the local market are already at rock bottom. This has affected companies which pledged their shares as collateral for loans. These companies should consider buying back their own shares and even delisting and going private before listing again. Short-term money flows into the local market, also called hot money, should be levied tax if they exit within three months.
The M’sia My 2nd Home Programme and M’sia Global Centre of Educational Excellence Policy could also help bring in valuable foreign exchange on a long-term basis.
Malaysia needs renewed emphasis on the English language. It’s counter-productive to play politics with Bahasa Melayu as the national language. Prime Minister Ismail Sabri’s decision to speak in Bahasa Melayu at the UN shows that he’s stubborn, recalcitrant, incorrigible and hardcore. Even Tamil-speaking Indian Foreign Minister Subrahmanyan Jaishankar, for example, spoke in English at the UN although 650m people in India speak Hindi as their mother tongue. Hindi and English are official languages in India. India has the largest number of English speakers in the world.
Indonesia has already rejected the adoption of the 20K Bahasa Melayu as the 2nd official language for Asean i.e. after English. In Malaysia itself, Bahasa Melayu fell into official disuse by 1969 when the 40K Bahasa Malaysia emerged. Indonesia has also declared that Bahasa Malaysia and Bahasa Indonesia are not Bahasa Melayu — Johor Lingga Rhio version — and vice versa. Indonesian Ministers, including President Joko Widodo, speak far better English than Ministers in Malaysia.
The status of the RM in the forex mart also depends on the S’pore gov’t which doesn’t want the M’sian currency to be too far from the SGD. Otherwise, the S’pore economy would be affected. When the ringgit started dropping from SGD1 to RM1, the media used to openly blame S’pore. Already, the RM continues to drop against the USD but by not so much or appreciates against the SGD, Sterling and other currencies.
S’pore is an international financial centre and also holds the Asian dollar market. The Euro dollar market was started by the old KGB in the USSR.
The 25m Chinese diasporas in Southeast Asia invest in S’pore as a safe haven. Much of the property in S’pore is held by the Chinese diaspora in Southeast Asia. It has contributed to GDP growth and maintained prices and values.
The exchange rate and the stock market are not the real economy i.e. creating wealth through the production of goods and services. They are speculative activities.
Bank Negara can take the cue from former Harvard University Economics Professor Dr Subramaniam Swamy. He has interesting YouTube videos on economics and economies. He sees India as pacing the US, not China, in the race to the top. Most of the innovation in the US, according to Dr Subramaniam, comes from Indian-American and Indians from India.
He argues that savings, investment, cheap labour and FDI were outdated methods of managing the economy. He points out that 60 per cent of the growth in US GDP comes from innovations i.e. new ways of doing old things.
He advocates the Indian gov’t printing more money and giving it directly to the people to eradicate the 26 per cent still living below the poverty line in India. New money in the people’s pockets will not result in inflation, argues Dr Subramaniam. “There will be increased demand which can be matched by supply. The supply side should be managed.”
(The Tamil-speaking Dr Subramaniam, a China expert, represents a seat in North India in the Rajya Sabha, the upper house of Parliament. He speaks fluent Hindi besides English and Tamil and some Mandarin).
Again, the exchange rate doesn’t matter as long as there’s no volatility of the currency. Currency stability is important so that employers, professionals, exporters and importers can work with the RM.
Again, if there’s no volatility of circulation but the ringgit continues to fall towards USD1 to RM5, the currency can even be pegged within a narrow range against the USD. For example, USD1 to RM5 and USD1 to RM4.80.
Who are the speculators? The widespread belief in social media has focussed on Mahathir Mohamad and former Finance Minister Daim Zainuddin. They may have learnt from currency speculator George Soros in 1997 during the Asian Currency Crisis which saw Finance Minister Anwar Ibrahim being summarily sacked in 1998. Others who have come under public scrutiny include Gua Musang MP Tengku Razaleigh, local exporters and importers, and S’pore, among others. Both Mahathir and Razaleigh have hypocritically called for the ringgit to be pegged.
Before the pandemic, AirAsia used to hedge in the USD and the oil market.
According to econometrists — they deal in a combination of economics, mathematics and statistics — it’s not advisable to have zero inflation. There must be at least two per cent inflation per annum. Otherwise, there’s a risk of deflation as in Japan during the last 15 years. Bankruptcies will increase exponentially. The economy may collapse and implode. See here.
Generally, it’s unlikely that locals would be affected by the exchange rate unless they go overseas. Malaysians must be encouraged to holiday in the country and attend local institutions of higher learning. Those who still want to holiday and study abroad may proceed after paying an exit tax.
Exporters and importers have long kept their revenue and income in USD accounts including locally. So, they are unlikely to worry about the exchange rate.
Exporters would see their revenue increase.
In fact, imports sold locally should not see any increase in prices. Also, the gov’t is subsidising goods and services at RM70b a year and has placed price controls on the basket of goods used to calculate the CPI (consumer price index).
Importers should pay in the currency of the source countries.
Likewise, exporters should demand payment in RM.
USD can be used only when buying from the US. The US, for example, should pay in RM when buying from M’sia.
Likewise, S’pore, China and India should pay in RM when buying from M’sia.
Then, the RM would go up against the US$ as well. – NMH
About the writer: Longtime Borneo watcher Joe Fernandez keeps a keen eye on Malaysia as a legal scholar (jurist). He was formerly Chief Editor of Sabah Times. He is not to be mistaken for a namesake previously with Daily Express. References to his blog articles can be found here.
The points expressed in this article are that of the writer and do not necessarily reflect the stand of NMH.
Longtime Borneo watcher Joe Fernandez has been writing for many years on both sides of the Southeast Asia Sea. He should not be mistaken for a namesake formerly with the Daily Express in Kota Kinabalu. JF keeps a Blog under FernzTheGreat on the nature of human relationships.