Monday, 22 September 2008

Money frenzy

Currently £1 = RM6.31, making it the most expensive currency in the world. Do you know why the British £ is so strong? No, it’s not because they have Manchester United or Liverpool. And honestly, the British economy is not exactly one which is booming. But why is the £ so strong?

To cut the extremely long and complicated story short, all currencies are supposedly backed by gold, or at least they used to be. This means if you want to print money, you either destroy some of your old notes or you have more gold reserve. And since the once great British Empire conquered so many continents, they have amassed quite a substantial amount of gold reserves.

Someone once told me that Britain is actually surviving on her war reserves. Come to think of it, that wouldn’t be to far fetch, isn’t it?

But anyway, that’s the basic principle of money, it needs to be backed by gold. This principle does not apply anymore.

But the big tai-ko in the world just like to do things differently. First, they owe a lot of countries a lot of money. Then, when they needed money, they just get some paper, went to the printer and started printing money… US$.

Now, the American govt wants to bail out some leading investment banks at the verge of collapsing. The bail out plan is said to be around USD700b. Makes the bail-out of our very own Port Klang Free dunno dunno what zone such a dwarf.

How are they going to do it? Are they going to it? Are they going to take USD700b out of their coffer? Are they going to conjure up USD700b worth of gold? Makes me wonder.

But why is the USD still stands at a relatively strong rate then? That is a story for another day. One thing for sure, the USD is backed only by faith and that faith is quickly depleting.

But the news of the day has to be the call by our International Trade and Industry Minister asking the govt to study on
re-pegging the Ringgit. I don’t care what the exporters are saying about pegging it to minimise hedging. To me, if the pegging is against the USD, then it is a very bad idea.

Last but not least, because America owes so many countries so much money, other countries will not let her sink. The morale of the story… if you want to start a business, borrow big, the bank will not let you die.

30 comments:

drumsticks said...

yes! something new.. hmm.. backed by gold? is it that they can't dig enuff gold here in msia that's why our ringgit so small? how does this work?

CK said...

thnx zewt. tat's enlightening. of course.. im waiting for your story on y USD still relatively strong? n the faith thingy too.

n y u think pegging is bad idea.

oh pls zewt, enlighten us.

meanwhile, i will start a business and borrow big. hopefully no one let me die. and i decided to start with you. is tat ok?

sooi2 said...

Hell yeah, the Brits have truck loads of gold! Price of gold went up recently and it had prevent the Cable from further going south. But economic conditions in UK are not that much better off either...let's see when is HBOS going bust.

Jed Yoong said...

"The morale of the story… if you want to start a business, borrow big, the bank will not let you die."

You are quite right.
Countries like Japan, China, Russia, Europe etc holds TONS of US$ reserves + securities.

The world can't afford to let the US crash.

Meanwhile, the US will continue with its financial magic...mint money...but these days, a simple double-entry will prob do the job. ;)

Hasbullah Pit said...

zewt,

I think alot of people confused.

Dr M said repeg Ringgit, but he didnt mention about repeg it to USD or what.

Ringgit can be repeg to a basket of Curency including gold.

Alex Yap said...

Zewt

The money/currency for each country is no longer tight to gold for many years already.

Yes, it used to be where if a country wanted to have more currency, they need to stock up more gold reserves. Not anymore.

Nowadays, each country can print their own money. The trick is the more money you print, it will depreciate the value of your currency.

Yes, you are correct, US dollar is backed by mainly FAITH. Yes the faith is quickly depleting. Come to think of it, almost every country in the world trade in US dollar. Hence the faith come from there. We are also seeing the trend where investor is slowly moving towards to use Euros or Yen.

PurpLe~MuShRooM said...

Not true in the case of ah longs... we borrow big, we die faster!

Michelle Khang said...

Boy am I glad that I earn 85% pounds and 15% USD, either way also foreign currency.

As long as the pound stay above 6 I am very pleased. A fortnight ago it went down till 6.05 I was cursing...

So if our government were to peg it to the pound, it should be good leh...

jadezheng said...

borrow big = the bank won't let you die? only for big countries like US maybe.. but for an individual... perhaps not gua~

Huei said...

will they come n splash red paint at my house? =P

Seaqueen said...

So to sum it up, this time the new Finance Minister did a good thing of not pegging the RM? Hmmm...hard to believe.

Edi神 said...

the most expensive currency is definately not UK POUND STERLING

is either OMAN riyal or KUWATI riyal.

Not sure...

erm said...

"if you want to start a business, borrow big, the bank will not let you die."

true.else the officer who approve the loan would be kicked out

you could nego your way out,the bank want you to pay no matter how small

better peg our ringgit to dinar...they are backed with lots of resources

Anonymous said...

Why they peg then unpeg then peg then unpeg, they think they changing clothes ah?

Maxforce said...

Zewt,
Misleading la your article.... Mana ada gold standard some more... better elaborate :P

anomaly said...

the idea of pegging the ringgit again shows our "ability" in managing the economy. They're making their intentions even more obvious, this wont stop capital outflow. i know many foreign funds have pulled out.

i think we should just forget about pegging, whether its USD, a basket of currencies, or gold. Gold would be disastrous...suicide for our export sector

borrow big and you'll have ppl holding you by your balls :)

Hafiz Noor Shams said...

No currency is backed by gold anymore. Not at least since the Bretton Woods was dismantled.

All currencies at the moment are fiat currencies.

zewt said...

drumsticks - hahaha... long story. and apparently. that doesnt apply anymore. i am certainly out of date.

CK - USD is going to be extremely weak with the bail out and the bleak economy. pegging the RM against means partnering with a dying currency. need i say more?

sooi2 - economy in the UK is sustained by rich ppl like us sending out kids there to studies... hehe...

Jed Yoong - i see such things happening right before my eyes.

Hasbullah Pit - hi there. my bad... mistake. amended post.

Alex Yap - hello there. welcome to AZAIG. yes, the US dollar is used as a common currency, thus the demand. a demand imposed on us. sorry about the gold bit... me outdated.

zewt said...

purple mushroom - that's why i said bank lah...

michelle khang - hahaha... good for u. not everyone has such blessings. yup... i think i want it to be pegged to the pound... or euro.

jadezheng - if you're a company then yes... individual... maybe, there's a chance.

huei - hahaha... they are not loan sharks lah.

seaqueen - not at all.

zewt said...

Edi - how much ah?

erm - hahaha... peg it to the white gold... that's the way to go.

anon @ 23/9 8.33pm - that's out beautiful country.

maxforce - sorry... my bad hehe...

anomaly - hahaha... on the contrary, i have seen how companies have the bank by the banks' balls.

hafiz noor shams - my bad... amended post.

kintaro_kun said...

A friend bluez_aspic has dedicated several posts to the current monetary/banking system:

http://www.recom.org/forum/showthread.php?p=201418

http://www.recom.org/forum/showthread.php?p=205057#post205057

(and some others, go search around)

Michelle Khang said...

pls...what blessing...i only make as much as an exec working in malaysia does...lol

only difference is i get earn it from my sofa!

Siew said...

very enlightening

myop101 said...

dear zewt,

whether gold or paper, both are just materials from which human, by faith, place value on it. why we place more faith in gold is because of scarcity whereas paper is something that comes from trees which grows out of ground (renewable). we can always back our currency with tin, copper, oil and such and having an exchange mechanism actually tells us a lot about the value of our currency. afterall, why do Malaysian ringgit depreciate when we are so rich of resources? it is because investors place a different value on other things they find of worth in this country and since then, they have abandoned it when situation change.

so is this system perfect? it is not of course. but what other system do we have? back to the gold standard? it is insufficient to facilitate trade and investments and it actually artificially props up the currency.

yes, US can keep printing the dollar because we have bequeath far too much faith in their currency but who's fault is it? i don't see people abandoning USD in droves in favour of EURO, Pound Sterling, Yen or even Renminbi.

even these currencies are no longer pegged to gold.

as for repegging, Malaysia is not known to have a consistent policy other than change to let people place faith on. i am not surprise at all if people keep dumping it.

myop101 said...

oops... correction. it should be change, ISA, OSA and other emergence laws and NEP.

Edi神 said...

Omani Rial 8.8896
Kuwaiti Dinar 12.850

I think Ringgit has gotten stronger, it was something like 1 Kuwaiti Dinar = to RM 17

H.C. Tan said...

i know im a bit out of topic here...but i just watched Death Race where in 2012 US economy collapsed. not a nice sight. haha. well, i agree with u, peg to Euro or Pound is better lah...

zewt said...

Michelle Khang - hahaha... well, from the sofa... that's a luxury. i am sure u know it.

Siew - :)

myop101 - the system is flawed but we all know, it will never be repaired becos the system needs to be flawed in order for the rich and powerful to exploit it to the fullest. as for ringgit, how i wish it's at SGD rate... sigh.

Edi - now... that was englightening.

HC Tan - why not nice?

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