Strong Currency, Strong Nation

Day 567, 17:12 • Published in Malaysia Malaysia • by Dmitri Chesnokov

This is an open letter to the government of Malaysia and any other informed citizens of Malaysia.

I have been informed of a plan by the Central Bank of Malaysia to institute a program of devaluing the currency to .007 gold per MYR. I want to take this opportunity to try and convince the government of the folly of this plan.

There are several reasons why the devaluation of the currency is a bad idea.

1) LOSS OF PURCHASING POWER

If this plan goes through, the citizens of Malaysia will immediately become poorer in gold terms. Imported goods will become more expensive, Malaysians who venture abroad will find that their MYR buys very litttle in foreign currencies, and nobody will want to work in Malaysia because of the small wages.

2) RAMPANT INFLATION

Prices for goods in all industries and Q levels will quicky rise making the cost of living higher. Payroll costs will increase, making businesses less competitive, and further damaging the fragile economy.

3) MORE VOLATILE MONETARY MARKET

When the value of a currency approaches 0.005 Gold, it becomes more and more volatile, since the game mechanics won't allow a currency to have more than three decimals.
eg. at 0.01 gold, you need 100 MYR to buy 1 gold. If the currency dips one one-thousandth to 0.009, you need 111.11 MYR to buy 1 gold. A difference of only 11.11 MYR.
However, if the price falls from 0.006 to 0.005, again, only one one-thousandth, the difference is a jaw dropping 33.33 MYR, or one days wages for a skill 4 worker.
This makes for a less stable currency, and makes pricing decisions and when to buy inventory much more difficult, which leads to businesses being less profitable.

4) LESS LIQUID MONETARY MARKET

Speculators have gotten a bad rap in the press lately, but they play a valuable part in the MM, especially in eRepublik. In a healthy MM, speculators, and especially spread traders, provide most of the currency offers on the MM at any given time. When a currency is falling, and even more so when the gvmt. engineers a fall in the currency, speculators pull out of the market, meaning that ordinary citizens can't quickly change their MYR to gold and back by filling an offer. They have to post an offer of their own and wait, sometimes for days, for it to be filled. This slows down commerce in the country, and is detrimental to all involved.

5) LESS FLEXIBILITY IN GOVERNMENT MONETARY POLICY

Since it costs the government 0.005 gold to print money, the government can only devalue a currency to that level before it is out of options. Today, at 0.008, the MYR is running perilously close to that level. The proposal to peg the MYR at 0.007 would bring a quick shot of cash to the government, but would also bring it one step closer to that economic no-man's-land. If economic fundamentals collapse, Malaysia would be left without any monetary options whatsoever, and I think the country would be better off to "keep it's powder dry" so to speak.

As you can see, the Malaysian economy is in a fragile stage right now, and devaluing the currency would destroy much of the progress that has been made in the last month. A stable, floating currency is the best recipe for economic growth, and the government should not try to undermine that by trying to cash in on their country's success. On the contrary, the Malaysian economy has been showing mild positive fundamentals, and that is why the currency has appreciated to .008 in the last month. If the economy continues along its present path, it will put natural upward pressure on the MYR, pushing it to ever higher levels. At the present, this would be advantageous to the nation, as it would decrease volatility, draw in speculators to increase liquidity, and increase the government's capacity to act in monetary policy.

Free market capitalism is the surest path to prosperity, and capitalism relies on a stable floating currency.

And so I say to the government, let the free market work! Its not broken!


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