Saturday, 18 December 2010

Money Matters

Its a very long time already I not talk about economy business thingy, especially Malaysia's. Actually I'm enjoy following currency market. I always take a walk through Jalan Masjid India, then go to Brickfield especially KL Sentral, take monorel to Bukit Bintang, after that Giant and Tesco or Carefour just want to know the exchange rate they offer. And supprisingly, KL Sentral offers better price than others.

Nowadays Malaysians, including Malaysian monetary authorities seem quite happy over the appreciation of the Ringgit against the US Dollar. It is now stronger against the US Dollar by approximately 20 per cent.

But what does this mean to the people? It should result in imports becoming cheaper if not by 20 per cent at least by some percentage below that. But I don't think Malaysian imports paid for in US Dollars is noticeably cheaper in Ringgit. I don't think you could buy Bvrgari 20 per cent less cheaper than before. Why is this so?  

We think that when our currency strengthens it must be because our economy is strong, Therefore we are doing well. But are we doing well? 

Is it the Ringgit which is appreciating or is it the US Dollar which is devaluing? Actually for me it is the US Dollar which is devaluing. It is devaluing against most other currencies, especially against China's currency. Why is the dollar devaluing? Could it be due to the currency traders selling dollars? Could it be because the balance of payment is not in US favor?

Martin Wolf of the Financial Times, an expert on money have this to say. There is a global currency battle going on. "To put it crudely," he says, "the US wants to inflate the rest of the world, while the latter is trying to deflate the US. The US must win, since it has infinite ammunition; there is no limit to the dollars the Federal Reserve can create. What needs to be discussed is the terms of the world's surrender; the needed changes in nominal exchange rates and domestic policies around the world.

Our reserves are represented by the US Dollar, gold and other currencies which we keep in order to back the value of our Ringgit, The US clearly does not have to hold foreign currencies to back the Dollar. All the US has to is just to create [print] the money.

When we buy US Dollar bonds, we are in fact lending US Dollars to the US. When we redeem the bonds all the US has to do is to print more dollars to pay us. We are actually exchanging hard-earned money for pieces of paper which some people call toilet paper. How nice it would be if we can pay all our debts by just printing money aah..

There is something fishy going on and the fishy smell is very strong in the US. "Poor" China with 2.5 trillion devalued dollars in its reserve. Wonder how much Bank Negara has? I'll try to find it later because I've read somewhere Zetty Aziz had gave press statement about Bank Negara's reserved before.

In the face of Governments devaluing their currencies in a currency war, what should Malaysia do? Keep the float or control? When we controlled our currency in 1998 we were called pariahs whose knowledge about finance could be written on the back of a postage stamp. Now it seems many nations are using their magnifying glasses to read what is written on the back of the postage stamps...
SRi:Better we float Malaysian Ringgit before it comes too late

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