Our country could have its currency notes replaced as Putrajaya looks to combat corruption.
Economic analysts, taking cue from Prime Minister Tun Dr Mahathir Mohamad’s statement yesterday, said he saw the plan as an effective measure to tackle corruption and address counterfeit notes.
They are also drawing parallels with the 2016 overnight move by India, which banned its 500 and 1,000 rupee notes, overnight.
The currency ban is part of efforts to close down the booming economy of untaxed cash transactions in India, which allows corruption, funding of terrorist groups and keeps counterfeit notes in circulation.
The move hit black marketeers and those who use black money hard as they were not able to move the notes openly as they were no longer accepted as legal tender.
Dr Mahathir told Channel NewsAsia in an interview that another option was for the country to embrace cashless transactions.
“We are studying how best to reduce corruption and how best to keep track of money that is being spent, especially by the government .”
He described corruption as one of the “biggest legacies of the old administration” and changing currencies could be a way to address the issue.
“(But) it’s not an easy thing because when you want to replace currency, you must know how much currency is in circulation…because we have to replace what is in circulation and that is a very big amount,” he said.
AmBank group chief economist and head of research Dr Anthony Dass viewed Dr Mahathir’s plan differently, saying:
“Sometimes, because people have too much money in hand, the government issues new notes to address this and distributes them slowly to prevent overspending.”
This, he said, could be a costly exercise, involving complex procedures.
“New ones must be printed, though these would likely be based on the old notes,” he told the New Straits Times yesterday.
“They will need special papers, millions of metres of security thread, watermarks, ultra-violet features and other anti-counterfeiting devices.”
Dass also cautioned that changing currency notes could send a negative message and the government could lose trust and confidence of stakeholders .
“Although countries can, and sometimes, do change the shape and size of their currency notes, and even denominations, often, the old notes are allowed to remain in circulation.”
Dass said there were other options.
“We can have a parallel currency, where the currency would be circulated alongside the old currency to pay for taxes, food and clothing, freeing up the new currency to pay for debt and create growth.
“Other than that, the country could go for digital currency, which is much easier to design and distribute,” he said.
Sunway University Business School economics professor Dr Yeah Kim Leng said Dr Mahathir could be referring to replacing the more expensive foreign currency debts, such as the dollar denominated 1Malaysia Development Bhd’s bonds, with cheaper loans or debt securities issued in another currencies, such as the Yen, as he had mentioned during his visit to Japan.
Likewise, he said, if the loans in Renminbi were found to be steeper, they could be substituted by domestic or another foreign currency debts, thereby reducing the country’s overall debt-servicing burden.
Yeah suggested that Dr Mahathir could be mulling these actions to address corruption that could have taken place in some mega deals.
“Renegotiating the terms and uncovering illegal payoffs, if any, will contribute to a reduction in the size of the debt.
“By lowering the debt-servicing burden, it will strengthen the country ’s fiscal position. Reducing exposure to a particular currency would also help to diversify currency risks, especially if the foreign currency had a strong likelihood of appreciation, making the loans more expensive to service in the future,” he said.
“A reduction in fiscal risk and an improvement in debt management will raise investor confidence, thereby shielding the currency from undue depreciation pressures.
“Lower debt servicing also means that the government can allocate more resources to spending, that in turn will boost the country’s growth, thereby lending support to the currency value,” he said.
In the Channel NewsAsia interview, Dr Mahathir, in responding to a question, said there was no need to peg the ringgit as the government was looking at the two options (going cashless and changing the currency notes).