By Joe Fernandez
The RM will stop heading north when speculators stop selling US$ and start buying the American currency by selling RM and gold!
The Ringgit Malaysia (RM) isn’t the issue in Putrajaya as long as there’s no volatility in the velocity of circulation viz. how often an RM10 note, for example, changes hands within any given period. That’s the Gold Standard used by Bank Negara in monitoring speculative activities in the Forex Market.
The RM note may change hands within one hour, 30 minutes or even less. The greater the frequency, and the narrower the range, the greater the velocity of circulation, and there’s a real risk of velocity introducing instability in fixing prices, making decisions on purchasing goods and/or paying for services including labour.
Ringgit Malaysia
Speculative activities for starters, whether based on calculated risk-taking or otherwise, aren’t the real economy.
These speculative activities do not create real wealth. They merely transfer gains, one benefitting at the expense of another, as with gambling activities. There’s no increase in the amount of money, viz. RM, at stake.
The real economy, based on creating real wealth, was about the production of goods and services. That adds to GDP growth and enlarges the GDP in PPP (purchasing power parity) terms and token US$. PPP was about how far RM1 goes in Malaysia compared with US$1, for example, in America.
The Forex Market, based on speculative activities, has seen the RM going between RM1 = S$1/B$1 and RM4.80 = US$1 since 1965. The US$, as an international reserve, serves as the trigger in the Forex Market for cross-trading purposes. There’s no direct convertibility of any currency except between the US$ and another currency. RM holders can only buy S$, for example, through the US$ viz RM after conversion into US$ buys S$.
Gold
The US$ has been valued in gold which isn’t money but commodity. It’s only the US$ that can be used for buying gold since the US government holds half of all government gold in the world.
India, if household gold were considered, would be the richest nation on Earth. The Gold Trust of India, set up by New Delhi, isn’t a work in progress. Housewives don’t trust politicians and the government with the gold they have been accumulating for at least between 15K and 8K years and perhaps for even 70K years i.e. if the Negrito, the first people in India, collected gold. Every household in India, no matter how poor, has some gold for that rainy day and ceremonies especially weddings. It’s the culture.
Inflation
The RM became the subject of speculative activities given the interest rate differentials in the US market. The money flowed in as Washington, spooked by the spectre of inflation, increased interest rates.
The RM has since strengthened somewhat against the US$ as profit-taking came in. Speculators sold US$ and bought RM. The RM will stop heading north when speculators stop selling the US$ and start buying the American currency. They will sell the RM.
The RM began strengthening recently when the US stopped raising interest rates amidst signs that inflation has cooled. Inflation may even go down. So, there’s no real risk of stagflation i.e. stagnation and inflation.
Instead, the US economy risks recession, probably depression and even deflation as in Japan, being in and out of the phenomenon for many years since China entered the American consumer market.
Beijing, like Tokyo, may get caught up with deflation as well. Already, there are media reports that China’s consumer stimulus packages may not be working. Deflation, based on a self-fulfilling prophecy, happens when consumers delay purchasing in the expectation of prices going down even further. The more that consumers delay purchasing decisions, the more that prices drop. So, consumers see no reason to make purchasing decisions in a great hurry.
It has been argued by subject matter experts that China may, in fact, not have any consumer economy at all. The consumer economy in China has been estimated at less than 50 per cent of the GDP. China, as a factory in the world, has an export-oriented economy. The global supply chain and international logistics network appear completely China-dominated.
Consumer economy
Malaysia’s consumer economy by comparison stands at 65 per cent, India above 50 per cent, and the US at 75 per cent.
There may be a case in Malaysia, and India as well, for eradicating poverty once and for all, by enlarging the consumer economy while at the same time managing the supply side so that runaway inflation will not rear its ugly head. That will add to GDP growth and make for a bigger GDP.
The poverty in India, for example, was estimated at 26 per cent before the pandemic. It has since gone up. The figures may not be available.
In Malaysia, based on government figures, 40 per cent of the people living in the money economy and those outside are poor viz. they have less money.
Corruption
Poverty cannot be eradicated by government projects as this approach, based on past trends, maybe more than plagued by rotten forms of politics driven by tribalism and feudalism under the guise of democracy, as a euphemism, and hidden forms of bribery and corruption.
Poverty can be eradicated once and for all by the government pumping money directly, every month, into the pockets of those living below the poverty line.
This isn’t rocket science. The New Monetary Theory (NMT) in economics advocates this approach.
Money
Money remains intrinsically worthless.
It only gets value, based on the confidence factor, from the second person accepting it from the first person. There’s hope that the third person would accept the money in exchange for goods provided and/or services rendered.
Although it’s true that the government prints money, most of the money in circulation has been created by banks. Banks, based on a tried and tested formula, lend out RM8 for every RM1 taken in deposit. However, banks don’t create inflation.
It’s too few goods chasing too much money that creates inflation.
The government, in managing the supply side of the economy, should encourage greater local production and/or allow imports from cheaper sources based on bilateral trade denominated in local currencies. The US$ should be kept out of the picture.
Chinese factories can help increase local production in countries worldwide. Chinese factories in the Gaza Strip and the West Bank, for example, can help create jobs and end poverty. Hamas can no longer recruit people for terrorist activities as a form of job description.
It was the opening of the US market with MFN (most favoured nation) status, entry into the WTO (World Trade Organisation) and local production by US multinationals that created jobs and took between 600 million and 900 million out of poverty in China within two decades. Beijing can adopt the same approach worldwide and help end poverty and terrorism once and for all.
It’s an open secret that America, under the guise of the global security framework, has been stoking latent hatred everywhere for creating violent movements for having ringside views through embedded intelligence gathering.
It has been US government policy, no matter who comes and goes, in Washington that Opposition movements worldwide, NGOs, and independent media, merit material and moral support.
Bilateral trade
India, in the wake of US sanctions imposed on Russia after the war in Ukraine began, created the group of twenty countries for bilateral trade denominated in Rupee. The 20 countries include Russia and Malaysia.
Rupees can be retained in India for investment, including in the booming stock market, and imports.
The Indian stock market, having overtaken Hong Kong in recent months, stands at the fourth largest in the world and shows potential for overtaking New York, London and Tokyo. The CCP, under the Common Prosperity Programme, frowns on speculative activities in the stock and property markets. Beijing, tightening loans for overseas purchases, caused the collapse and implosion of the Forest City in Johor. It was planned on several islands off the coast.
In future, if the China Story were well and truly over, most of the world’s paper billionaires would probably hold shares listed in the Indian stock market.
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● Joe Fernandez is a longtime Borneo watcher. He has been writing for many years on both sides of the Southeast Asia Sea. JF keeps a blog under FernzTheGreat on the nature of human relationships.
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DISCLAIMER:
The views expressed here are those of the writer and do not necessarily represent the views of New Sarawak Tribune.
