Monday November 9, 2009

Sound currency policy crucial

THIS is my response to the article by P. Gunasegaram with the headline “An Easy Way to Richness – The first step to moving towards higher income is to let the currency rise” (The Star, Nov 7).

First of all, I believe this is a crazy and short-sighted idea. It likely leads to a recession. When our currency is strong, everything we import seems to be at a discount and this encourages people to spend more on foreign goods and services through imports.

Strong currency also discourages our usual foreign trade partners to buy goods from us, thus export value will drop.

It also causes a country to lose its competitive advantage in attracting foreign investments.

At a time when inflow of money is significantly less than outflow, a serious current account deficit occurs in a broader sense. Malaysia will then be in deep trouble, after a short period of delusive wealth.

There are many ways to look at the Big Mac Index report published in The Economist. It could mislead ordinary people in countries like China, Thailand, Indonesia and Malaysia, causing them to feel inferior in their buying powers and they wish their governments will make them wealthy in an easy way.

When I look carefully at the hamburger standard list, out of the 34 countries in the list, 22 have their currency devalued more than 10% against the US dollar, and the median is approximately -27%.

If using the median as a new base for comparison, the US dollar is simply overvalued.

If the ringgit were to be strengthen to a level of one for one US dollar, I would say good luck to everyone in Malaysia, welcome to the “burgernomics club”.

We will be staring with mouths watering at the Big Mac burger with an attractive price of RM3.54 in Malaysia just to find that our wallet is empty. And conveniently, if you want some money, IMF out there is willingly to lend you plenty.

There is no free lunch. Permanent and sustainable wealth does not come from currency rate delusion.

From a layman’s point of view, for centuries, to accumulate wealth, we must enhance our productivity.

In the present context, we must work diligently to generate greater values in the supply chain, be more innovative to create things or services which other parts of world are willing to exchange abundantly with their wealth.

The Government should use our money effectively to build infrastructures (which includes the education system) in order to facilitate long-term social and economic growth.

Of course, a sound and strategic currency policy is inevitably crucial.

LIFE FLIER,

Sungai Petani.

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