No Link Between Falling Ringgit and Profligate Money Printing?

An economist has dismissed a suggestion that the decline in the value of the ringgit is attributable to profligate money printing. The Malaysian Institute of Economic Research (MIER) said France in 1981, and Germany in 1988, reversed policies premised on modern monetary theory (MMT) due to their inability to cover their respective domestic currency liabilities. The MMT is a fiscal policy model which allows a government to print money needed for spending, instead of being restricted to using money raised by taxation and borrowings.

Bank Negara Malaysia would not venture into money printing as a policy measure to cover deficits.  Previously, FMT columnist K Kathirgugan had suggested that a significant increase in the supply of ringgit over the years had led to a substantial decrease in purchasing power. He said the ringgit’s money supply surged from RM4.1 billion in 1970 to RM2.4 trillion over 54 years. This does not correlate with GDP growth and GDP itself, as velocity of money is usually measured as a ratio of GDP to money supply (M2). Under monetary theory, it is usually viewed as constant.

Source: https://www.thetruenet.com

UCSI University associate professor of finance attributed the decline to illicit capital outflows, where Malaysia ranks fifth globally with an outflow of US$291 billion based on a report by Global Financial Integrity.

Tighter regulations on transfer pricing is a possible solution, but could discourage foreign investments. Then there are remittances by documented and undocumented workers which amounted to RM9 billion in 2022.

Money printing (forget about MMT) in line with GDP growth will not cause inflation. But where it is printed profligately to cover deficits, then inflation or hyperinflation will arise. Currency movements are a mixture of:

• Relative GDP growth;

• Comparative inflation between countries;

• Portfolio flows, FDIs and remittances;

• Interest rate differentials;

• Trade surpluses/deficits;

• Fiscal deficits (or otherwise);

• Political and societal stability; and

• Speculative forces

That is what the Madani Government has to focus on, not speak about “fundamentals are good” – and what exactly does that mean?

Reference:

No link between falling ringgit and profligate money printing, says economist, Lynelle Tham, FreeMalaysiaToday, 16 March 2024