Article: FB Post by a former Central Banker
MMJ
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An FB post by a former Malaysian Central Banker
Confessions of a Central Banker?
[Reflections on the First Anniversary of Leaving the Central Bank]
Today is Labour Day exactly one year since I left the Central Bank to explore new paths.
How does it feel?
One of the best decisions I’ve ever made. In terms of money, if I had stayed, maybe the salary will be higher. In terms of work benefits, there was a lot I gave up. In terms of prestige, it's not the same, I used to sit in the heart of the policy centre and know a lot of important discussions.
But there are things that money cannot buy. Peace of mind, time with family, the feeling of having a more blessed sustenance, the feeling of benefiting the public, everything is not directly proportional to the salary. How many millionaires and famous artists are depressed?! Happiness, only the self that knows, and the meaning of life is to give, not how much is received.
On the occasion of my retirement anniversary, I would like to recap my personal reasons for leaving the Central Bank:
1) The place is a place of usury, and I have no good reason to continue there.
Economic and Finance experts can give all kinds of arguments, but they still have to face one fact:
'a Central Bank is the chief manipulator of Interest Rates and by extension the Credit Supply in an economy'
The Central Bank is the main determinant of interest rates and the supply of debt in an economy.
Money in the modern world is completely fiat. It no longer relies on gold or any commodity that can discipline a government. Anything the government says is money, is money.
If they want more money, then Central Bank interest rates will be lowered, people will be more in debt, and the money supply will increase. If they want to limit the money supply, then the interest rate of the Central Bank will be increased so that the public will have less debt.
All commercial banks will follow the riba rate (Usury Rate) determined by the Central Bank. The Central Bank is the 'Mother of Usury' in the country, everyone else just follow.
(Note: In Islam we consider 0.1% interest as usurious as we define Usury based on the relationship and allocation of risk between giver of money and receiver of money. If the relationship is lender and borrower and risk 100% on one side and zero risk on the other then 0.1% interest is usurious. Lending risk does not count as lending with interest is a prohibited activity)
Usury and debt are not only accepted as 'necessary evil' but are considered in the Central Bank community as a 'force for good', something that will stimulate the economy and should be used.
While at the Central Bank, I sat in the monetary policy department, giving inputs to determine the rise and fall of this interest rate. The share of complicity is huge, compared to, for example, the person who takes care of the physical building of the Central Bank.
And I have no good reason to continue there:
- I don't think I have the capacity to reform the system towards 'sound money' (a stronger currency/less usury). I am not by nature a bureaucrat who can be patient with various committees and long processes. Not even an economic intellectual whose free time is spent reading the American Economic Review journals.
So no, I am not the man for that kind of job. I will never be a Central Bank Governor, but I will support any governor who is willing to undertake the difficult path towards monetary sanity.
- How about the other people who continue to be there? What is their argument? We are open to each other's arguments. I will not pass judgment. There are valid reasons for example: a) that person is better, more competent than other people; b) the whole world uses that system, we are just small fry with no influence; c) indeed we are reforming little by little, even if crawling.
- I just don't find good reasons for myself. And if the argument is simply 'we're just earning a living here, we don't have to think too much', for me that is not acceptable with the level of intelligence of the people who were chosen to work there.
2) Central Banks are generally 'statist' and pro-inflation
In any professional field there is a mainstream sect/doctrine they hold. Economists are no exception. It's a pity that the doctrines held by mainstream economists and Central Banks are mostly Keynesian in nature.
To explain the Keynesian understanding may be lengthy. But in short:
- Classical economics adheres to traditional values in economics. Among them include: that wealth comes by working, and individuals/countries will get richer if they save a lot.
When you save a lot, more investments can be made to further develop society. 'Supply creates its own demand' - those who work hard will become rich and able to become buyers for other goods, thus prospering the whole society.
Keynes and his followers held to an unorthodox value (which has now become orthodox): a country will get richer if more people spend. Savings are 'frozen assets', so people need to be given incentives to spend.
'Demand creates its own supply' - spending will lead to more goods and prosperity, so find ways to increase people's demand.
This Keynesian understanding causes Central Banks to worry about 'low demand'. When demand is low, the remedy is to encourage people to spend by making loans easily available and plentiful, or by giving various government incentives even if the government has to borrow.
The Central Bank relies on this teaching to believe in 'statism' (government power), which means that the government needs to control the economy in detail through bureaucrats and politicians. This is the opposite of those who believe that 'the source of strength is the people': wealth is the result of individual efforts, and the government only needs to provide ample space, uphold justice and punish the wicked.
This Keynesian doctrine is really interesting for the government. Who likes to be told 'you have to be skimpy, you have spent too much'. It's more interesting if we are told 'don't be skimpy, just shop, it's good for everyone'. After all, that money is not their money, it's people's money. If you don't have money, just print new money.
Obviously this is the path towards the destruction of the currency. It is necessary for an ever-growing money supply. When money is more than goods, the price of goods will always rise. With this understanding, inflation will always be there.
And the world's Central Banks love inflation. For them it is a good thing, when the price of goods always goes up, people will always chase hard to increase their efforts and raise their salary, they want to shop now because they are afraid that the price of goods will not be as cheap as it is now.
This understanding is very bad.
While Prophet Shuaib ( Jethro) told his people
أَوْفُوا الْمِكْيَالَ وَالْمِيزَانَ بِالْقِسْصِ وَلا تَبْخَسُوا النَّاسَ أَشْيَاءَهُمْ
"Perfect the measure and weight with justice, and do not deprive people of things that are their right!"
Don't take anything from people's property. While inflation is the most terrible 'wealth thief'. People's salaries, people's savings will be eroded little by little without them realizing it. And all because of following a lame doctrine.
I no longer want of تَبْخَسُوا النَّاسَ أَشْيَاءَهُمْ, (“They deprive people of their things”) it is not possible to sit in an institution that is pro inflation.
For those two main reasons I left. Let someone else who is more competent lead the Central Bank in a better direction. We should sit outside and testify that the system is not a good system, hopefully the harm can be reduced step by step.
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Dikemaskini [Updated]: Sam Ahmad 20240519