PRESS STATEMENT BY MOVEMENT FOR MONETARY JUSTICE MALAYSIA

USE WINDFALL PETROLEUM REVENUE TO REJUVENATE THE ECONOMY, DIVERSIFY INTO OTHER RESERVE ASSETS LIKE GOLD, YUAN AND RUBLE AND FORM A COMMERCIAL BARTER EXCHANGE FOR FOOD ITEMS TO AVERT A FAMINE.

Global geopolitics, particularly the war in Ukraine has caused oil prices to surge to new highs. In March 2022 it had breached the USD120 per barrel mark. This accordingly brought about huge profits for Petronas, our national petroleum company. In 2021 Petronas made some handsome MYR48.6 bil in profits from a turnover of MYR248 bil. This year profits are likely to double judging from its reported first quarter profits of RM23.4 bn.

In the current recessionary trends of the global economy with many firms still recovering from the effects of the Covid19 pandemic, lockdowns and so forth, we urge Petronas to use the windfall funds to help boost Malaysia’s ailing economy.  

An economy thrives when there is enough liquidity and money circulates well in the economy. Hence, we call upon Petronas to spend on SME’s, particularly those related to its business, to “jumpstart” new flows of money in the economy.  

Many SMEs are in need of working capital financing, and such actions from Petronas would not only help such companies financially but also indirectly boost the economy and encourage employment. In other words, the spillover effects and the multiplier effects of the economy would be exponential.  

However, we do not support the calls to Petronas by certain quarters to bailout mismanaged companies, unless the companies are crucial to the economy and Petronas is capable of completely taking over the companies and replace the old management with more competent management teams that can turn around the ailing companies.

Petronas’ turnover and profits would surely bring about vast amounts of foreign reserves for the country. Accordingly, we suggest BNM to diversify its reserves significantly into gold, yuan and ruble.  

Traditionally the US dollar is the more popular reserve currency but however with the current global geopolitical developments, the dollar is in a real threat of collapsing.  

This stems from two major reasons; one Russia has pegged the value of its ruble to gold, by making 5,000 ruble exchangeable for 1 gram of gold. This is like returning to the classical gold standard. Furthermore, Russia is a major exporter of oil to Europe and is now demanding payments be made in ruble, away from using the petrodollar method.  This is a significant development because petroleum is a crucial input to run the economic engine of any country.  

China too, a couple of years ago, launched its petro-yuan backed by gold. Hence, all in all, Russia and China, the two countries that are capable of giving challenge to the US militarily and economically are paving the path for the world to move away from the petrodollar system to a system backed by gold.  

Hence it makes a lot of sense for BNM to accumulate gold, ruble and yuan as reserve assets in the current circumstances of the world.  

If Malaysia too can also sell its oil for gold equivalents, that will be best, i.e. petro-ringgit backed by gold. However, for such a move, serious political considerations are necessary and must be carefully weighed. For example, do we have the military might or military affiliations to defend such a move?

The current global geopolitical situation has the tendency to create hyperinflation globally due to at least 6 reasons. Hyperinflation in food prices has particularly serious effects on the people. Soaring prices can make food become not accessible to many people, particularly those in the lower income group. 

This is the reason many experts are predicting a global famine; a famine not caused by shortages in food production, draught or even climate change, but rather due to a monetary phenomenon where many households would find food prices too exorbitant for them.

Some households in Malaysia are already complaining that their income is not even enough for groceries.  

The six reasons for the inflation in food prices are:

1.   Quantitative easings done in the US and elsewhere in trillions of dollars lately.

These are massive creation of new money that surely would make global prices to soar, particularly because the dollar is an international reserve currency. Also, the global commodity spot and futures markets are priced in dollars. Hence this surge of new money can find its way into these markets and push up commodity prices.

2.   Secondly the Ukraine war has caused oil prices to surge globally. Oil is an input for the production and distribution of almost every product in the world. The transportation industry is heavily dependent on oil too. Hence the rise in oil price would make the price of almost everything to rise too.

3.   Ukraine is a major producer of global wheat. The Ukraine war expectedly has disrupted wheat production and exports from Ukraine, hence causing wheat price to soar. This would cause prices of all food items, especially grains, to soar too, being substitutes for wheat.

4.   The fourth reason is, as Russia makes 5,000 ruble exchangeable for 1 gm of gold, this would make ruble to rise against the dollar. Indeed, the ruble keeps appreciating against the dollar as we write this. The US has responded to this by increasing its interest rates significantly. However, markets seem to be predicting a still further weakening of the dollar. A falling dollar would cause the price of all things priced in dollar to rise accordingly, and this includes food items. This seems to be the most plausible reason for the expectation of a global famine by experts. Basically, a famine because most people are unable to afford the food prices, rather than due to shortages of food.

5.   Observing the above and with the expectation of a weakening dollar many nations have become defensive by halting their food exports, giving pretext reasons like due to draught and so forth. India has stopped exporting wheat, while Indonesia its palm oil, Argentina’s soyabean, Turkey’s cooking oils, beef, mutton etc. Such defensive halting of exports of food items itself would push further prices of these food items up.

6.   The sixth reason is a possible escalation of the Ukraine conflict into a full-fledged global war, perhaps into WW3. If this happens, then there would ensue a serious hyperinflation and untold misery of the people worldwide due to food shortages. Let’s pray things would never get to this level.

The above reasons are primarily a monetary phenomenon rather than due to real reasons.  

Backing national currencies to gold, like what Russia has done, can help avert a global famine and misery. However, admittedly, this requires serious political considerations.  

Therefore, to encourage countries to resume their food exports back, as a second best solution, we recommend a commercial barter exchange among nations for food items be instituted. And this is crucial.