28th June 2018

We are informed the Government is considering changing its paper currency in order to combat corruption, in a similar manner as was done by India recently.

Whilst the subject of national currency is being discussed, Movement for Monetary Justice, an NGO dedicated to Reform of the Monetary System for the better wellbeing of the people, feels the time is now opportune for the Nation to consider a Reform of its Monetary System.

A Reform that will remove insidious inflation causing inter alia high food and rocketing house prices, reverse a persistently widening poverty gap, increase economic output, remove unemployment of youth and graduates, apart from addressing other more international monetary concerns.

Unbeknownst to many today, we, like all other countries in this world have outsourced Money Creation to the Private Sector. Whilst we believe that our money is created wholly by our Central Bank, in reality they only create 5% of the nation’s money supply. 95% of our money we have outsourced to be created by the Private Sector. When this section of the Private Sector creates money it does not take into account public concerns like inflation and employment ; it is motivated primarily by private profit which have worked to the detriment of public concerns as listed above.

Who is the Private Sector in this country that creates 95% of our money?

The answer is the Banks. Banks create new money every time they give out loans or financing. This phenomenon of banks creating new money when they give out loans (or financing) is proven and confirmed no less than by the Bank of England, The Federal Reserve and the European Central Bank.

And this creation of money by the Banks motivated purely by their private profit concerns has resulted in the list of anomalies listed above i.e. insidious inflation resulting inter alia in high food and rocketing house prices, a persistently widening poverty gap – the rich getting richer and the poor getting poorer, an SME sector not favoured in financing resulting in significant loss in economic output and high youth and graduates unemployment.

In studies done in for example the UK, we find the following statistics which is reflective in most countries in the world. The banking sector only funds 16% of the real economy- 84% of bank loans are for housing, commercial property and the financial sector.

Hence when the sector given the responsibility to create money do not channel it to the real economy, new goods and services are not created by this new money. The end result inter alia is general and bubble inflation. Hence the general inflation of food prices and living costs, and bubble inflation for houses and property.

Another anomaly in the world today is that only 15% of bank loans goes to the SME Sector which on average creates 80% of employment in most nations. This results in much youth and graduate unemployment throughout the world whilst a higher capacity of economic output is denied when the SME sector is not properly funded.

Locally, in statistics given by Jabatan Statistik Malaysia in 2005, and which survey appears not to have been repeated since, the banking sector only provides 15% of SME funding needs. Out of this 15%, only 3% were from Development Financial Institutions, of which the SME Bank is one of them.

The Banking sector demonization of the word risk has also contributed to the non-funding of the SME sector and the subsequent high unemployment among graduates and youth. If pressed, why banks are reluctant to lend to the SME sector, the usual answer is risk, and that the SMEs do not have adequate capital and collateral. Movement for Monetary Justice believes this is only true if the banks confines itself to lending.

The problem of risk, inadequate capital or collateral, Movement for Monetary Justice believes will be removed, if in a radical reform the banks are willing to make a paradigm shift to move from lending to equity investing in SMEs. For the sake of reference we note in Islamic Muamalat the key legal maxim, currently ignored, is Alghunm bi Alghurm ie Rewards comes with Risk.

The problem of risk will be solved if the banks have adequate officers to closely monitor all SMEs they invest in. The problem of the wage costs of these investment officers will be solved if they are paid on an allowance plus profit sharing basis.

As to where to source these officers from, our army of unemployed graduates will provide the manpower.

As for training them to be Investment Officers a nation building Special Training Academy at Universities can easily be set up, with professional and former entrepreneurs as lecturers.

This solution will not only create jobs for unemployed graduates it will spur new job creation and economic output spurred by this increased funding of the SME sector.

Movement for Monetary Justice has the detailed Proposal to implement this Nation Building Project.

If banks are bad creators of money, and the current system delivers inflation and widening poverty gap amongst others, what is the Solution?

Movement for Monetary Justice have the detailed Monetary Reform Solution to remove insidious inflation, to reverse a persistently widening poverty gap, to increase economic output, to remove unemployment of youth and graduates, and also to address other more international monetary concerns.

We humbly request to be of service to the Nation.

Movement for Monetary Justice Secretariat,
Kuala Lumpur.