We refer to the Honourable Finance Minister’s recent abandonment of responsibility of control over banks in Malaysia’s Covid affected economy. This, in our opinion, is an unfortunate conclusion based on much dated understanding of economics. A government do have control over banks and especially a nation’s money ; and most of all a government has a higher duty of care over its beloved rakyat, exceeding everything and certainly, everyone else.
In a functioning economy workers work to get wages or income. With this money they spend on goods and services to survive. By doing work they also produce goods and services. So what happens is they produce goods and services and then gets money to buy goods and services.
In a Covid affected economy workers may lose jobs or street sellers can’t sell their food and wares and they will have no money to buy goods and services. When they don’t work or can’t sell, then goods and services in the economy drops. They can use their savings but because they don’t have that much money anyway these savings will also soon finish.
The economy is now in a jam; goods and services fall by the amount related to the unemployment of the workers and rakyat, and the existing goods and services cannot be sold because the buyers don’t have the money.
In such a situation we expect the total goods and services in the nation to drop and therefore an injection of cash by the government to assist the unemployed will not be inflationary. It is a boost needed to assist the unemployed and also to help the sellers sell their goods.
Where is this funds to come from? The government have used up all it can spare; used the people’s EPF savings and raided the KWAN Fund.
The most obvious method is to borrow from the banks. But why?! The banks will just create new money to lend to the govt ; the banks do not lend from existing money, that is a myth. Ask Bank of England or the European Bundesbank. If the government borrows from the banks new money is created by the banks.
The government should just create this new money and give it to itself to spend into the Covid affected economy. Inflation?! Would not the money created by the banks to lend to the government be inflationary too?!! What is the difference between that money created by the banks and this money created by the government. Both are going to be spent into the same economy where goods and services has dipped because of Covid. How come this money created by the government is inflationary and that money created by the banks is not inflationary?!!!
It is about time the government adhere to rapidly world trending real economics. Firstly banks do not lend from deposits; banks create new money when they lend to individual, companies or government. Secondly banks are not innocent institutions that takes deposits from some people to lend to other people; they are money creators of the nation.
So our advice to this government to assist the Covid economy, create this money now either via accounting entries with Bank Negara Malaysia, or take advantage of current world trend and create the money via Central Bank Digital Currencies. And while they are at it create two or three, one hundred percent state owned public banks just like China. China have four one hundred percent state owned public banks with loans one hundred percent given to the real sector, hence its explosive and phenomenal economic growth. Malaysia’s government-owned big banks lends 65% to the personal sector and only 35% to the real economy while its seemingly public banks like Bank Pembangunan cannot create money!
As at June 2020 RM1.27 trillion was the amount of money lent by our banks to the personal sector. The mind boggles where would Malaysia be if the RM1.27 trillion had been given to the real economy. We find it very difficult to cry for the banks when they have a wealth of RM356 billion in combined Shareholders Funds, added on every year by RM34 billion annual profits. Just for comparison at today’s exchange rate RM356 billion equals USD86.8 billion; BNM’s total foreign currency reserve is only USD99.9 billion. The banks’ wealth is almost equal to the value of BNM’s total foreign reserve! No Sir, we find it very difficult to cry for them.
The government needs to unlearn many things about economics. They are in good company if they refer to the International Movement for Monetary Reform. And about banks creating money, it is a fact long established by Bank of England and the European Bundesbank.
The Secretariat
Movement For Monetary Justice / Gerakan Keadilan
Monetari
Website : mmj.my Email
:monetaryjustice@gmail.com
3rd June 2021