Our monetary system is a seriously flawed one. We at Movement for Monetary Justice Malaysia (MMJ) have been engaging with the public, bankers, academics and government, pointing this out and its serious implications for the Rakyat. In particular we are referring to the fiat money system. Fiat money is money not backed by real assets like gold or silver. A lot of bankruptcies and foreclosures are now being expected, more so as a consequence of the economic lockdown imposed due to the Covid19 pandemic. 2021 is a worrying year in this respect, for many individuals and businesses will crumble if we do not address the problem wisely, thereby sparking more serious political problems too.
Back to fiat money, the world went on a complete fiat money system after the collapse of Bretton Woods in 1971 when the dollar was made no longer redeemable for gold. In Malaysia however not many realize that fiat money system started since 1860s when banks in the Straits Settlement started issuing printed paper notes as ringgit. Before that a ringgit was a 20gm silver coin. So what’s the problem with fiat money? Well notice that the banks were, and still are, creating purchasing power out of nothing. Up until today, most of the money in the country is created out of thin air, in the form of loans, by the commercial banks, which are privately owned. This structure is ridiculously unfair since loans (i.e. new purchasing power) are made by creating inflation in the economy. Hence it is everyone in the economy who actually finance loans created by the banking system by bearing the inflation created. This structure, by design, also widens the wealth distribution gap in the economy. Accordingly the intra and inter racial wealth gap in the country has been worsening all along since the introduction of fiat money in the 1860s. Of course the dynamics of this would ultimately culminate in political problems and chaos.
The Covid19 pandemic lockdown has accelerated this process of socio-economic-political degradation. Such economic lockdowns would wipe out a good portion of liquidity from the market. Accordingly, business activities shrink, incomes shrink and employment shrinks, hence pushing the economy into a recession. Oxford Economics estimated the Malaysian GDP to shrink 6% in 2020 (The Star, 21 Sept 2020). Surely households and businesses in such situation will face much difficulty in paying back loans; hence the government’s policy of 6-month moratorium on loans is therefore commendable. However, the effects of the lockdown on households and businesses will continue to be felt way into 2021, especially once the moratorium is lifted. Many are likely to be declared bankrupt and businesses and properties foreclosed. This is because many individuals and businesses are still trying to stand again after the economic fall. Indeed some businesses are likely to be lost forever. The pandemic, in our opinion, is a force majeure event, and it should be regarded as such and not as a normal event. The Department of Insolvency had registered 5,066 bankruptcy cases from January to August 2020 mostly in the age group of 35 to 44 years old. The proposed change to the Insolvency Act 1967 may help reduce the number of cases when the bankruptcy threshold amount is increased from the current RM50,000 to RM100,000. In 2019 there were 12,051 cases, i.e. an average of about 1,000 cases per month. In 2021 this number is however expected to be substantially higher.
Notwithstanding the moratorium and changes to the Insolvency Act, it is time the government take a serious look into the structure of the monetary system itself. The Central Bank and Commercial banking system has clearly failed the Rakyat. Inflation has gone unchecked all the years and the ringgit exchange rate has weakened substantially. If a ringgit could buy about 6 chickens in early 20th century, it could only buy about 1 chicken in 1970s and now less than 1/10. Exchange rate too, if in early 1970s the Singapore dollar-Malaysian ringgit exchange rate was SGD1=RM1.10, now it is more than RM3. And the monetary system’s worst effect is the glaring disparity in racial income and wealth distribution. Accordingly, no point we continue with the current system, for if we do it will only lead to serious political problems later with chaos and instability in the country. Let us, therefore, address the problem early.
We at MMJ, therefore, call upon the government to do the following:
1. Take back the money creating powers now entrusted with the commercial banks. Privately-owned commercial banks creating money out of thin air is blatantly UNJUST, and this has gone unchecked for more than 150 years. Here, we call upon government that all money for the country is solely created by Bank Negara ALONE. Existing commercial banks should be allowed to invest or lend only the money deposited with them by depositors. They should not be allowed to create money out of thin air using the fractional reserve banking system. In other words we call upon the government to embrace SOVEREIGN MONEY concepts, where the money creating activity is made the responsibility of the Parliament.
2. Cancel the interest portion of all outstanding loans, and require borrowers to pay only the principal portion of loans back to a government-owned institution, like the Bank Negara. This is because the original loan created out of thin air should rightfully belong to the government. Extended time should be given to the borrowers if they require more time. If the total amount already paid on a bank loan equals or exceeds the loan principal, then that loan would deem to have already been settled. This rule should be made applicable for all loans taken from all financial institutions, banks or otherwise, including P2P loans.
3. All interest-based loans made illegal from here onwards. Interest is a damning variable in economics that goes against the natural order of things. The unaffordable housing phenomenon, unsustainable economic and environmental ecosystems, unemployed graduates, shrinking populations and numerous other socio-economic problems are fundamentally rooted in the existence of interest rates in the economy.
Yes the above measures may seem radical, but we are in very uncertain times that need out-of-box solutions. We must correct what need to be corrected. Basically, if we are to sail through the 21st century smoothly as a nation, the economy needs to be RESET. WE HAVE TO DO THIS IN THE INTEREST OF THE RAKYAT, AND FOR THE PEACE AND SECURITY OF THE COUNTRY.
Dear Prime Minister and the Cabinet, PLEASE DO THE NECESSARY BEFORE IT IS TOO LATE.
MOVEMENT FOR MONETARY JUSTICE MALAYSIA (MMJ)
24 October 2020