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 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.