The KY-asu Economist September + October 2022 Issue

by Kadija binti Kamarulzaman

s our finance minister read out Malaysia’s brand new and record breaking 2023 budget early this October a whooping RM372.3 billion against the previous RM332.1 billion in the 2022 budget, the general public held their breath and hoped for the best. Short of saying it met expectations, suffice to say, there was little to complain about, as the nation pondered over the country’s debts and the need to revive and recover from the 2 year slump.

The theme of the Budget “Strengthening Recovery, Facilitating Reforms Towards Sustainable Socio-economic Resilience of Keluarga Malaysia”, rang true as netizens described it as one that was “feel good”, “people’s budget”, and “committed to the rakyat”. With the general election just around the corner, it wasn’t at all unexpected and one wouldn’t have to question why the Budget was structured to offer “sweeteners” for all.

What does the budget offer?

The budget includes a significant amount of measures taken to protect the welfare of Malaysians, especially in this period of trying to restore the livelihood of those who had been hit by a higher cost of living following the rising interest rates and inflationary pressures post-pandemic. Looking closely at the more notable beneficiaries of this budget, however, are the women of Malaysia. The unprecedented move of taking significant steps towards eliminating gender inequality economically has never been done before in previous Malaysian budgets and is proof of our government’s commitment to protecting the most vulnerable group in these economic conditions.

Adressing Women

As an ever-typical Asian country ridden with traditional ideals, Malaysia is not a stranger to the practice of women having to take “career breaks” after pregnancy or upon entering motherhood in order to take on the role of home-maker and caretaker; be it willingly due to their selflessness, or begrudgingly due to guilt. This has resulted in women struggling to return to the workforce as they have to juggle not only their workplace and maternal responsibilities, but also the burden of having to pay hefty income taxes despite having little to no disposable income of their own. Malaysia’s 2023 Budget recognizes this as a problem, as it proposes for women who return to the workforce after their “career break” to an entitlement of income tax exemptions for five years from 2023 until 2028.

Maternity in these unstable economic conditions is also not easy to navigate, as new mothers and young women often have to grapple with finding the means to fundraising a child; such as purchasing numerous costly baby formula milk and diapers every month. In light of this, it was proposed that women from households who give birth in 2023 will be eligible to receive one off cash assistance of RM500 under the CahayaMata Keluarga programme. Additionally, families can also claim tax relief of up to RM3000 on fees paid for TASKA and TADIKA registered with the government, which will help to reduce the burden for families with younger children.

the Finance Ministry’s seemingly “solid” policy making when it came to women. While a hand out of cash could look neat and generous to a lot of B40 mothers, such one off cash assistance can only be useful to solve immediate financial strains, as opposed to the realistic daily challenges a mother will have to face day to day, as well as the ever increasing demands from a developing child under their roof. Critics also promptly noted that the proposed exemption of income tax for women returning to work seems to only benefit certain women who earn enough to get tax exemption in the first place, such as those in formal sectors.

The Budget acknowledges the importance of boosting women’s participation in the economy to make an impact on improving Malaysia’s Gross Domestic product (GDP). Special attention is also given to the new surge of women who have recently joined the digital entrepreneurship space to seek new income opportunities during the pandemic, where the Ministry of Finance has set aside RM235 million to help these women build, upgrade and market their businesses, as well as offer training programmes to increase the number of women in leadership roles in the male dominated industries.

Nevertheless, despite all “sweeteners” being proposed to women in the recent budget, netizens alike were quick to point out the cracks in

The Budget evidently fails to reach or recognize those who work gig jobs or sell food at a gerai by the roadside, who lack basic needs and necessities such as basic child care. Thus, it would have been more logical for our government to create a robust childcare system one that’s safe and affordable, which would actually allow for all women alike to contribute to their families, as well as their country, economically. The devil is in the details, we can only hope (and vote!) that the government satisfies by serving our nation in restoring Malaysia’s economic balance instead of grappling at scoring brownie points, saving us from the currently fragile fiscal momentum.

s economic activities have been spurring after years of stall, Bank Negara Malaysia (BNM) has begun to hike the OVERNIGHT POLICY RATE (OPR). In 2022, BNM raised the OPR by 100 basis points (bps) from 1.75% to 2.75% (at the time this article was written). The OPR has been the talk of the nation for months. This begs the question, What is OPR and why does it matter so much?

TIMELOWAGAINST

GREENBACK:WAS INCREASINGTHEOPR THERIGHTCALL?

By: Anieq Luqman Shah

At the end of every business day, banks are required to meet a minimum amount of reserves. If a bank does not meet the requirement, it will have to borrow cash from another bank which has a surplus of reserves. As you know, when we borrow money from banks, we are obligated to pay them interest. The same goes to banks wherein the OPR is the interest rate. When banks have to pay more, they pass the extra costs to us, their customers. This is done by increasing interest rates on personal loans and mortgages. Additionally, businesses that intend to expand their empire will reconsider doing so. The outcome is a ripple effect that will take place resulting in an economic slowdown. As such, the OPR acts as an instrument to tame inflation. As the OPR is increased, cost of borrowing increases causing purchasing power to decrease. When consumers have less cash in hand, demand will fall and firms become wary to increase prices. At the end of the day, inflation will stabilize.

As increasing the OPR slows down economic activity, investors would want to draw their capital out of the economy and place it elsewhere. Therefore, the Malaysian currency would depreciate. As of now, the value of Ringgit against US Dollars has surpassed the 4.70 mark. So, did BNM scare investors away?... No. Here is why. As the supply chain has been disrupted due to the pandemic and further impacted by the geopolitical crisis in Ukraine, inflation has become a global phenomenon. When we face times of uncertainties, investors seek shelter by investing in the global reserve currency as it is considered a safe haven. Furthermore, the US Federal Reserve decided to use an aggressive approach to tame inflation. This year, the Fed interest rate has spiked by 350 bps from 0.25% to 3.75%. As the US interest rate is higher than ours, it is admissible to invest in the American economy rather than the local economy where it can give higher returns (OPR does not only affect loans but also investments). On top of that, Malaysia is expected to hold our 15th General Election soon. This removes political stability in our country and results in loss of confidence among investors. Nevertheless, a weak ringgit can still be put to good use for exporters and tourists as these industries would find its demand boosted.

In conclusion, was increasing the OPR the right move? I believe that the strategy of increasing the OPR gradually is convincing and the right call made by the Monetary Policy Committee. Keeping the OPR low could do more damage as it would just widen the gap between the Fed rates and ours. Eventually, this will put the ringgit in a worse position. Despite the terrifying volatility of the ringgit, the welfare of citizens are still at ease and there are no indicators that we are heading into a recession. Yet, a higher OPR has reduced the nation’s burden on the matter of inflation in the economy. Although not by much, it is the least that the central bank can do.

TERRA LUNA : HERO TO ZERO

by Muhammad Arshad

Cryptocurrency is the biggest thing that has happened to the financial market in the last ten years. We can see that some people make a fortune out of it, but some people lose their shirts. This situation is no different from what happened to the Terra Luna tragedy, whereby 60 billion dollars was wiped out of the digital currency space on May 7, 2022. Before diving into that, what is cryptocurrency, and how does it work?

Cryptocurrencies are decentralised digital currencies that you can buy, sell and exchange directly without an intermediary like a bank. Cryptocurrency is built on a distributed digital record called a blockchain that acts as a medium where information transfer of transactions occurs. Terra Luna uses the same base as any crypto coin, except it has the characteristic that made Luna such a stable coin in the first place. Terra Luna is a brilliant coin linked to the dollar by algorithms and game theory.

This means, technically, two markets of Terra Luna and UST simultaneously balance each other. For instance, if UST ever fell below a dollar, arbitrages would buy UST and then buy luna at a discount which would prop up the price of UST. If the opposite happened and UST went above a dollar, people would use their lunar coins to buy UST and resell them on another platform, bringing the price down.To summarise, when terra's value drops, luna holders are supposed to trade in their coins, which increases the cost automatically. This enables both markets to ensure their supply and demand balance in respect of the US dollar.

Some call this ponzinomics, whose value was supposed to stay steady, offering some safety in the wild west of crypto. The demand for Terra Luna increased even more after the Luna company promised a 20% return to its coin holder.

This clever system was created by Do Kwon, the co-founder of Terraform Labs, but ultimately failed. You may be asking “why did it fail?”. The reason was a significant sell-off of UST worth billions of dollars. This caused the stable coin's supply to become highly in surplus, causing its value to the US dollar to shatter. More people sold off UST, -

which led to the minting of more Luna and an increase in the circulating supply of Luna.As a result, UST's support for the unstable coin Terra Luna is no longer there, causing Terra Luna to lose 99% of its value. The price was trading at $6.25 in the first place, plummeting to only 0.02$. People who were hopeful of getting 20% in return ended up with no return. Both coins were falling so fast that Binance stopped selling momentarily. In the aftermath of this, Luna is abandoned as it is worthless. Some say the private entity that dumped billions worth of UST is the one to blame, but some say an algorithmic stablecoin like this is built to fail.

In the end, Do Kwon, the coin's founder, tries to revive his beloved coins through another complex process involving trying to eliminate UST's surplus supply. But this effort is like fighting a losing battle, as people have already lost their trust in Terra Luna. In conclusion, this disastrous event reminds us that cryptocurrency trading is like any other investment with a big risk. We should keep in mind not to use our life savings as some did with Terra Luna, which ended them up with nothing. Although cryptocurrency is a great way for us to invest and build our portfolio, it is risky as minimal government intervention involved could not prevent any market movers with enormous capital.

THEENDOFTHEELIZABETHANERA: THEENDOFTHEELIZABETHANERA: THEENDOFTHEELIZABETHANERA: THEIMPACTOFQUEENELIZABETH THEIMPACTOFQUEENELIZABETH THEIMPACTOFQUEENELIZABETH II’SDEATHONTHEUKECONOMY II’SDEATHONTHEUKECONOMY II’SDEATHONTHEUKECONOMY

by Iman Amani

SEPTEMBER 8 2022: The words “London Bridge has fallen” echoed throughout Great Britain. This signified a huge loss, for not only the commonwealth but also the world, of a queen who had reigned for nearly 80 years. Her Majesty, Queen Elizabeth II - the longest reigning British monarch serving for 70 years and 214 days, swearing in 179 individual prime ministers in her lifetime and serving as the head of 32 states beginning at the tender age of 25- died peacefully in Balmoral Castle. Her legacy is deemed extraordinarily historical, a once in a lifetime occurrence for the modern ages.

It is evident that such an esteemed individual like herself, when gone, would bring about a major economic impact on one of the biggest economies in the world. An economy already deep in turmoil: experiencing one of the worst currency crises the nation has ever seen, weakened by strikes around the country and facing risks of inflation in the near future. Now, left in the hands of a new Prime Minister, Rishi Sunak who took office after the resignation of the shortestserving UK Prime Minister, Liz Truss.

PotraitofQueenElizabethII

This series of unfortunate events is unlike anything the UK has ever faced. It is clear that the queen’s death has come at an extremely bad time. Now, the question that arises is: What happens to the UK economy due to the loss of a monarch?

CURRENCY CHANGE

Following the oldest person to have ever acceded to the British throne, King Charles III who will be replacing his late mother as the new monarch will subsequently be taking her place on the new UK coins and banknotes. According to the Bank of England: approximately 7 to 8 pence is needed to produce a banknote. This means that the cost to replace these can be estimated to be around 350 million pounds.

However, this conversion will not be an immediate change done in a single night: Queen Elizabeth II herself took around eight years to appear on a banknote after she acceded the crown, which also means that a similar time scale would likely be seen with King Charles III. Undoubtedly, a change this big should severely impact the nation’s supply of money but luckily the Bank of England and the Royal Mint have been preparing for this event for quite some time, so further procedures and initiatives have already been taken into consideration including setting aside some amount of money.

THE ENERGY CRISIS

The loss of a significant individual enveloped the UK with a blanket of grief and sorrow as different people with different statutes, from members of parliament and royal officials to common day-to-day farmers and labour workers, came together to mourn the loss of a beloved monarch by honouring the Queen with a 10-day funeral. This affected the country’s workforce causing productivity to lower which then reduced the overall economic output. From this, the economy was pushed into a technical recession of two back-to-back quarters of negative growth.

This was not something that the UK could afford to happen due to the energy crisis. On 31 August 2022, Russia halted all exports of natural gas to Europe after several leaks were found in the pipeline. According to data from Trading Economics: “the cut-off has caused the cost of natural gas in Europe to triple to €217 per Kilowatt-hour recently compared to €70 a year ago.” For the UK, it meant that energy bills for an average household could exceed £6,000 yearly by April 2023 due to the higher heating costs in the winter. Experts have even deemed that some people will not have enough money to pay their bills. Additionally, Companies and private firms could also be impacted by this with more than 76,000 at risk of facing insolvency due to high energy consumption (especially those in the industrial sector).

It is clearer than ever that Queen Elizabeth II has played a deep-rooted role in the UK economy and society, in fact, more than we could ever imagine. Personally, it makes you wonder how much of a difference the world would be if the royal family did not exist: Would it ultimately change society, politics and economics as a whole for better or for worse?

by

Money, money, money. Everybody wants and uses money as they believe those colourful pieces of paper to be valuable. Essentially, that is how our current currency system, fiat money, works. Through this system, our Malaysian Ringgit is not of intrinsic value and is backed by a little faith from us, Malaysians. It is also accompanied by a reassuring pat on the back from the government and the central bank. On the contrary, the golden age of the Malacca Strait's trades involved the usage of currencies that had intrinsic value such as silver, copper, and gold coins. So, where did all that go? Or to be more precise, where did it go wrong? Let’s take a look at the journey of our currency; how we went from being backed by gold to being backed by the US dollar, to currently being backed by, well, faith.

Fiat money: The emergence

To understand why we use fiat money in our economy is to understand why we abandoned the gold standard in the first place. Before diving any deeper, let’s get some facts straight. First of all, World War I and World War II caused the devaluation of currencies all around the world that was at the time directly tied to gold (the gold standard). Second of all, the United States of America (USA) had and still has the biggest gold reserve in the world. With countries in need of printing more money to rebuild their economy post-war, it was realised the gold standard system was not compatible.

Hence, considering those previous factors, a 1944 summit was held in a town called Bretton Woods in New Hampshire, USA. It comprised 44 allied nations that decided upon an agreement called the Bretton Woods Agreement.

* BrettonWoods, New Hampshire, USA

Sophia Alessandra Walters

The Bretton Woods Agreement came up with a fixed currency exchange rate. This basically means, since the USA has the most gold reserves, the value of the US Dollar was fixed to gold ($35 per ounce) while the rest of the world’s currency had fixed exchange rates to the US Dollar. This enabled only the US Dollar to be converted into gold which gave the USA economic dominance. Another significance of this agreement is the establishment of the International Monetary Fund (IMF) and The World Bank. The IMF was tasked to maintain the international monetary systems and enforce the Bretton Woods agreement. The World Bank on the other hand was tasked to ensure economic development by loaning money. In simpler terms, they loaned out money so that countries are not required to print more money which consequently avoids the devaluation of their currency.

However, there were multiple flaws in the system that caused it all to collapse. At the time, the USA was facing multiple political conflicts such as the Vietnam War which was one of the many economic problems that required major financial funding. This led to excessive printing of the US Dollar which ultimately devalued their currency against their limited supply of gold. As other countries started to catch on, they demanded gold in exchange for the US Dollars that they possessed as they slowly lost faith in the stability of the US Dollar. In this period of time, the USA was not only experiencing high inflation but a continuously decreasing amount of gold in their reserves. How can it get any worse? Hence, Richard Nixon, the then President of the USA announced to halt all exchange of US Dollars to gold. Just like that, the final nail was hammered into the coffin of the Bretton Woods Agreement and the gold standard system.

The downfall of the Bretton Woods agreement plays a huge role in the world moving away from a currency that is of intrinsic value. This is why our country, Malaysia, is involved in the usage of fiat currency in today’s economy. Having read about the previously failed policies and agreements that lead up to our status quo today, what makes us so sure the fiat currency will maintain its stability? In recent years we have seen countries such as Zimbabwe have their currencies join the “fiat graveyard” as they undergo hyperinflation during economic crises. Is it time we draw up new plans for a new type of currency? Or is the fiat money system truly the most compatible monetary system out there?

Youdon’tneedtheiPhone14(or15, 16,and17either)

by:MuhammadMikhailbinTaufiq

You walk into the Machines store, eyeing that glistening screen, with its sleek matte cover and its new Dynamic Island. This is the 7th iPhone you've had in 10 years. To desire the same product, with the same design and nearly the same functions year after year, is perfectly normal. That lust for more, that desire to own more things, you feel it when you walk into a store, when you see advertising before your YouTube video and when you walk on the streets window shopping. So let me ask you, after all those purchases, consumption and receipts, are you happy? Science and common sense say otherwise. This engine of consumerism lies at the heart of many capitalist economies, and it's about time we ask, is this the only option we have? Before going to the larger scheme of things, let's talk about this on an individual level.

Compare the joy between a significant achievement in your life and buying a product say, winning a competition versus buying a new TV.

It's obvious that the former achievement is a far more vibrant, apparent memory because you had to put in the effort to achieve it, leading it to be more meaningful. Consuming new products is a form of instant gratification. It doesn't require work, and you get an instant happiness boost. However, it doesn’t last long, compared to delayed gratification. It's achievements that require weeks, months and years of work, culminating in a burst of joy and fulfillment. That is what it means to accomplish something and it's those very accomplishments that will define you. To be addicted to buying is to imprison yourself in a jail of manufactured contentment, and we must ask ourselves, isn’t it time to break out?

Furthermore, recognize that simply making more stuff isn't adding any benefit to our well being. The questions then become what to produce instead of how much to produce. This concept is rooted in economics to boot, with prominent economist John Galbrait Keynes

having encouraged the transition from Upon realizing that mindless p od ction and cons mption a e the