We seem to produce an over achiever’s share of rocket scientists in Malaysia. Worse, a great many of them get elected.
Consider this suggestion by a deputy minister to a local radio station recently. In an interview with BFM 89.9, Deputy Youth and Sports Minister, Wan Ahmad Fayshal, suggested that the central bank should just print money and spread that among the poor as a means to alleviate poverty.
This might sound like common sense but it literally means too much common cents; what Yogi Berra meant all those years ago when he said “a nickel ain’t worth a dime anymore.”
Typically, when countries print money, the first to rise are prices which almost immediately negates its objective in the first place. It’s like those “banana notes” of the Japanese Occupation, when no one had enough money because everybody had too much of it.
It was like the recent situation in Venezuela, where people with too much money in their pockets remained broke. And that’s a cruel irony because Venezuela still possesses huge oil reserves. With good governance, however, it’s also its future salvation.
Even so, modern monetary theory argues that we could conceivably print money….up to a point. Malaysia can, and, for a long time has, issued debt paper to investors who reckon that the country – with its future growth prospects and its resources – is a safe bet. Once taken up, that translates to a surge in local ringgit as the central bank converts the proceeds into money supply. It has nothing to do with distribution to the poor, but everything to do with financing future economic growth.
That’s also the rub. The debt has to be seen to be put to good use. The minute the trust vanishes – for whatever reason including bad governance – all bets are off and investors will flee. We’ll be on the road to Zimbabwe.
In the latter’s case, mistrust led to the currency’s blowout and subsequent hyperinflation.
The only country that can do it, seemingly indefinitely, is the US and the reasons are rooted in history.
World War I brought an end to the economic supremacy of the UK and Europe. Countries had to abandon the gold standard and anchor the value of their currencies to the U.S. dollar, which became the world’s reserve currency, the only one backed by gold.
Richard Nixon’s 1971 decision to abandon gold altogether ensured the supremacy of the U.S. dollar. Tricky Dick might not have realised it at the time, but future Presidents have a lot to thank him for.
As the world’s reserve currency, most international trade and almost all transactions that take place internationally (not just the ones involving the U.S.) use the U.S. dollar. This means that importers, exporters, banks that are servicing them, central banks all around the world and many other market participants need to hold the U.S. dollar or liquid dollar-denominated assets. Like anyone else, they like to keep their wealth safe, and so they buy from the U.S. Treasury.
This is why there is unlimited demand for U.S. debt. The Fed can print ad infinitum. The lucky sods!
It’s already happening. As a result of the coronavirus crash, the U.S. dollar has spiked, and U.S. Treasury yields have fallen because investors keep buying treasury securities on trust.
Right now, it’s the closest thing to safety, the proverbial Fort Knox. Well, so far anyway….
Malaysia isn’t even close. So all talk of “printing” money should cease and desist forthwith.
So should all election jokes. Too many of them get elected.