Smart Currency, Smart Nation
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by Hireshmont Vellos
This article is a response to the recent articel by the Singaporean multinational businessmen Dmitri Chesnokov, who is a member of the Imperialist Party of Singapore, which self-identifies as "center-right, totalitarian." I am about to insult him, probably, and also factually demolish his point of view. His opinions are those of, well, a totalitarian foreigner seeking to exploit our economy, pure and simple. His article is here:
http://www.erepublik.com/en/article/strong-currency-strong-nation-825106/1/20
1. Mr. Chesnokov states that inflating the MYR (he says "devaluing," that is a political term. We are discussing economics, we should use economic terms, not try and manipulate public sentiment: inflate, not devalue. Deflate, not strengthen) will cause us to lose purchasing power. This is false. A cheaper MYR will not necessarily read to higher prices across the boar😛
it will make exporting easier, and lead to more jobs and higher wages, in MYR terms, for workers here in Malaysia. Prices of imported goods, yes, will rise. Profits from exported goods will rise. Domestically produced, domestically sold goods will have little to no change in business viability, but will find foreigners more eager to buy their goods: sales will grow. Expanding economy means more prosperity in general. Mr. Chesnokov's fearmongering about "Malaysians venturing abroad" fails to account for the fact that many of Malaysians best goods are EXPORTED goods, and his fear of inflated MYR values is probably rooted in his profits that his company reaps from our exchange rate.
2. What Mr. Chesnokov says about rampant inflation is correct: good thing we don't plan on engaging in rampant inflation! We are engaging in moderate, controlled inflation: a controlled shift to a better level that will help Malaysian business grow. Mr. Chesnokov's threats of rampant inflation are multinational fearmongering tactics of the first degree, coming from a man who is part of a totalitarian party, attempting to hold down Malaysia's exchange rate to maximize his personal profits.
3. Mr. Chesnokov is correct about a more volatile monetary market: that is a real issue. However, it is by no means a catastrophic issue. Many nations survive with similar rates. Portugal, home to some of the largest and most prosperous companies in the world, maintains an exchange rate at 0.007, for example.
4. Mr. Chesnokov is wrong about the effect this will have on independent market agents, who he lambasts as speculators. This new price level, as he noted in the 3rd point, will have higher market inefficiency: which means higher speculative profits. This more inflated level will, in the short term, have some destablization: hopefully sound Central Bank policies can mitigate those effects. However, in the longer term, higher speculative profits will more than make up for the shift, and allow eMalaysians to build their own nest eggs.
5. Finally, Mr. Chesnokov brings up the issue of the government's ability to print money. That is a real concern: which is why the Central Bank should only print money sparingly, when it truly needs to. If the MYR falls to 0.005, that would indeed be very bad in the short term... but it would also serve to make the MYR abundantly cheap, boost exports, and the market, which Mr. Chesnokov so strongly advocates, would correct it.
Mr. Chesnokov is foolish enough to believe that the Central Bank is opposed to a free market: no, it does not. It supports the free market, it holds it up, to ensure it does not collapse. Mr. Chesnokov has forgotten that this is eRepublik, and that, in eRepublik, GOLD grows on trees. Every month for congress, Malaysia "grows" 150 GOL😨
more than its entire GDP, probably. Hard worker medals, super-soldier medals, level-up medals, etc, etc probably put in at least the entire size of the GDP every month. This is a natural deflationary force that does not stem from the market forces of productivity and consumption, but from a game-defined externality: thus, to preserve a natural reflection of supply and demand, the Central Bank must supply MYR to meet that GOLD supply. GOLD, of course, is also destroye😛
by investment, for example. Hopefully there is lots of investment going on in Malaysia, but I am not at all sure of that, and I am skeptical that there is 200-300 GOLD of investment (which is probably about what our monthly GOLD influx is).
Mr. Chesnokov should keep his multinational totalitarian rubbish to himself: take it home to Singapore, where his party can lose another election.
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As usal Hirsey, well written.
RAW HIGH FOR eCHILE! NOW!
Nice article, voted 😃
voted
Snappy title, biting commentary, intelligent points. Bravo, Sir.
Voted, Subscribed, and Friend Request sent.
Now, my respones:
Inflating/devaluing, = tomAYto/tomAHto.
"Expanding economy means more prosperity in general"
In MYR terms, perhaps, but in gold terms, anything gained will be wiped out and probably overshadowed by inflation.
"his fear of inflated MYR values is probably rooted in his profits that his company reaps from our exchange rate."
Oh No! God forbid anyone should make a profit! No, no, we can't allow that to happen! The public's faith in the Nice Government Men would be entirely shaken if that were to happen! We can't allow it.
A rising tide lifts all boats. If I'm making a profit, you can bet everyone else is too. Do you really want to mess with that?
In regards to point 4, I don't think you understood my point. I am not lambasting speeculators, I think they're essential. Everyone is rushing to get out of the MYR now, but when all the specualtors are gone, the only source of liquidity will the the central bank. And that can only be a bad thing.
Cheers!
-Mr. Chesnokov
"In MYR terms, perhaps, but in gold terms, anything gained will be wiped out and probably overshadowed by inflation."
I still don't really understand this point. It's not like we are going for the 0.007 rate after a long and stable period at 0.008.
Also very few speculators acquired MYR for more than 0.007 gold. You are not one of them either afair, so you can still make nice profits on our monetary market.
I did indeed misunderstand your point about speculators; I too think they are valuable.
However, they are second-class. Government agencies take priority. That's the way it is.
Regarding profit, I have no problem with profit in the abstract. I have a problem with the misallocation of profit. In the Malaysian economy, I want maximum profits being made by Malaysian businesses: not by importers. On our monetary market, I want maximum profits being made by Malaysian speculators and organizations: not foreign speculators and organizations.
Moreover, not everyone is rushing to get our of the MYR. I have quite close connections with many banking firms, and none of them have expressed any panicky or unsurety regarding the MYR. Volume at 0.008 was declining: I know, I do checks at least every day, sometimes more often. Volume has risen since our move to 0.007. After congressional elections, I suspect that GOLD volume will rise, and greater deflationary pressure will be exerted. Perhaps it will not be a pronounced shift, but I would not be at all surprised.
Finally, a rising tide does lift all boats. Which is why we are inflating the MYR: that raises the tide. Deflating currency does not lift all boats: it lifts the boats carrying goods from other countries. Inflating currencies "raise all boats" more effectively.
"However, they are second-class. Government agencies take priority. That's the way it is."
Maybe thats the way it is, but its not the way it should be. Private industry and private enterprise drive growth. The best way the state can encourage economic growth is by getting out of the way.
"On our monetary market, I want maximum profits being made by Malaysian speculators and organizations: not foreign speculators and organizations."
I hate to burst your bubble, but that is simply not possible, especially with the limited gvmt. tools available in erepublik. You can't drive a market up AND down simultaneously for two different groups of speculators. Its one or the other, and this path will only hurt speculators in both camps, and will eventually hurt the country at large.
"Moreover, not everyone is rushing to get out of the MYR."
Its too early to tell, but I suspect that in a week or two, the private supply of MYR willing to sell at .007 will dry up, and the central bank will have the only substantial offer holding the price down.
One reason I think this, is because the prices on the flip side of the MYR haven't budged in the 36 hours since the peg was announced. This means that the spread is almost non-existent, and that is VERY unusual for an economy the size of Malaysia's. This suggests that .008 WAS the natural level that the MYR had settled at and adjusted to.
In general, inflation is evil. It discourages saving and investment, and encourages borrowing and consumption. Not to mention that it is a stealth tax of the highest order. It siphons wealth from the holders of currencies and into the government's pockets. A stable, floating exchange rate is the best option for any country, even exporters.
Leave the free market alone, its not broken!
1. Private industry and enterprise should not direct growth. Enterprise and industry should direct growth: efficiency should direct growth. If that exists in the private sector, as it often does, excellent. But many things are better provided by the public sector, like roads, for example, which provide a massive economic use, but are economically impractical for private enterprises to undertake on a comparable scale.
2. You are kind of right about it not being possible: but we can slant our economic policies to generally favor industries that tend to be based in Malaysia, and slant it to generally favor the business policies of Malaysians. And there actually are some indirect/complicated ways of favoring Malaysians... which are are doing.
3. You are assuming that small markets must be inefficient: that is false. That is only true if every market agent is speculating primarily on unknowns and risk factors. But if a Central Bank, or some other entity, can set up a system that provides greater safety and security, and where information is more accessible which allows diminished risk, efficiency can rise. Moreover, it's been, as you said, 36 hours: give it some time. Our comparatively low-liquidity market will probably take some time for rates to fully stabilize.
4. In general inflation is not evil. Nor is deflation. Inflation discourages saving and investment, deflation discourages consumption and lowers monetary velocity. Its lose either way. An economy needs investment, and needs consumption. It cannot survive if it lacks either. However, Malaysia currently has a labor shortage and lots of companies on sale: it is OVER INVESTED with too little spending. So, we inflate a bit, and spending rises, and consumption begins to rise to meet investment. QED.
Oh, on a sidenote... I'm not speaking purely from theory. I've actually done this before. And I had a hand in the founding of eSingapore's monetary policies (though my advice certainly hasn't all been followed), and even in your party (oh the irony). I am not just spouting off, I know what I'm talking about. I have been cited on multiple occasions by leading investment/financial newspapers, and regularly interact with many different major banks and corporations, both private and public. I generally know what I am doing.
1,2 and 3: I disagree with you here, but I don't think there is anything more I can add to this debate that hasn't already been said.
4: You're contradicting yourself here. You say "In general inflation is not evil. Nor is deflation." Yet two sentences later: "Its lose either way." You were right the second time, deflation is just as evil as inflation.
Your points in the fourth section would make perfect sense if Malaysia had been in a pegged currency system. But it wasn't! It was floating nicely until you decided to mess with it. If your theory that the market was over invested was true, the market would have automatically fallen to .007 or lower. BUT IT DIDN'T.
Thats what makes free, floating currencies so great. Decisions about whether to inflate or deflate are made irrelevant because the market automatically adjusts to the right level.
I've never had any doubt that you know what you're talking about, thats why I like debating you so much.
However, everything you said in your second post could just as easily have been said by John Keynes. He was a very smart man who definitely knew what he was talking about, who was a leading monetary authority in his day, and who, despite being acknowledged as the greatest economist of the 20th century, was very, very wrong.
I don't doubt his or your intelligence, I just think you have a bad foundation to build your beliefs on.
Keynes was not very, very wrong. Had had some wrong points, and especially some oversimplified points, and the politicizied applications of his theories were often wrong, but he was not fundamentally wrong: he was just fundamentally incomplete.
What I meant by "not evil" is that they both have their uses, depending on what is happening in the economy at any given time. They BOTH have downsides: its not like one of them is all good, and the other is all bad.
You say you want a "floating" currency... newsflash! WHen the Malaysian currency was floating, it was LESS efficient, and it was LESS stable! Moreover, we DID peg at 0.008. The shift to that level was provoked by Central Bank activity, which was based on the misguided logic that a deflated currency was better for the economy. That view was wrong, and the Central Bank has sense returned to what the currency was BEFORE it was forced down to 0.008. Moreover, volume was DECLINING at the 0.008 level, and it has since essentially stabilized.
Overinvestment does not always naturally provoke a the ideal currency response. Why? Because sometimes the maximum efficiency of a currency for the market associated with it is not the maximum efficiency course for the agents that guide it: a market of primarily exporters needs a lower currency value, but, by the dynamics of export finance, will actually gradually strengthen the currency. Thus, the natural currency dynamics will gradually stiffle business growth, while intervention based on consistent and reliable tax revenues can help maintain the market at the cheaper level, and sustain business growth.
wow these are the longest comments i've ever seen bravo on getting people to talk about this so much. people really getting into it.
In a pegged economy with perfect economic management, your second point makes sense. However, management is almost never perfect, and the MYR has never been successfully pegged (though that may be achieved this time around). Without those two preconditions, the cons of inflation and deflation inevitably outweigh the pros, as the central bank misses or overshoots the optimum level repeatedly.
Floating currencies are by definition more efficient than pegged ones. It cannot be otherwise. Yes, the peg is more stable than the float was, but it is utterly inflexible. Currencies are like skyscrapers. Strength and stability are very important, but they need to be able to sway a little in the wind as well, otherwise they can crumble.
You did peg it at .008? Thats a surprise. I've been reading the Malaysian news almost daily for over a month now and never have I seen a pro deflation article, or any talk of attempting to peg the MYR again. The central bank may have bought up some MYR, but to me it looks like they were only one of many buyers in the market who pushed the MYR up.
You're proving my point that currencies automatically adjust to the optimum level in your last paragraph. It is a good thing, NOT a bad thing, that the dynamics of export finance gradually strengthen the currency. Its a kind of economic safety valve. Without it, inflation would run out of control. The free market promotes the developement of a balanced economy and keeps both inflation and deflation in check.