If Malaysia starts dropping helicopter money, what happens next?

There has been a lot of debate on whether Bank Negara should print more money and directly hand the cash to Malaysians. Last week, deputy Youth and Sports Minister, Wan Ahmad Fayhsal Wan Ahmad Kamal went for an interview on BFM and said the central bank should print more money.

In the interview, Wan Ahmad brought up 3 points, 2 of which are heavily mentioned on mainstream media, but the last point did not really get any traction.

Now, PlanNERD is all about personal finance and money. Putting politics aside, let’s dissect the above paragraphs starting with the first 2 points:

  1. Helicopter Money
  2. Hand money directly to Malaysians

 

What is Helicopter Money? How can it help the economy?

Helicopter money is an act when a country increases the nation’s money supply by printing a large quantity of new money.

The purpose of helicopter money is to spur inflation and economic output. According to the Department of Statistics Malaysia, Malaysia is currently facing deflation instead of inflation. In simple terms, consumer goods are getting cheaper.

Falling in the price of consumer goods may seem like a good thing for most of us. However, a long-term deflation is a sign of a weakening economy. Companies will layoff employees or perform a salary reduction to cope with the low prices of goods. We have witnessed many layoffs and salary reductions in 2020.

If Malaysians are given helicopter money, we will have extra cash to start spending again and this will eventually increase the demand for goods and services, which will then stabilise the nation’s inflation rate.

If Helicopter Money is good, why is everyone complaining?

There is a saying “too much of a good thing is bad”. If the dropping of helicopter money is not properly designed and executed, the following consequences may occur:

 

Uncontrollable inflation rate

Zimbabwe, a country in Africa is often used as a case study for inflation in recent times. The country is experiencing hyperinflation. At its peak, the country’s inflation is estimated at 79.6 billion percent month on month.

(If we are experiencing that level of inflation in Malaysia, a bread that cost RM1 today, will cost you RM796,000,000 next month.)

Having too much money in the system will drive prices up as demand for goods and services increases. Without proper control, that value of the money that is sitting in your bank account today will evaporate overnight. This is often referred to as the “invisible tax”.

Devaluation of the Ringgit

Similar to the point above, when the supply of Ringgit Malaysia increases, the price of the Ringgit will eventually tumble.

Point #3: Empower Our People

“I do believe that on top of giving cash transfers, we also need to empower our people to be ready for the economic growth/recovery which will be coming soon next year”

This was Wan Ahmad’s third point during that interview with BFM.

But this wasn’t discussed extensively in any mainstream media. Maybe it wasn’t “Headline Worthy”; or maybe it wasn’t further elaborated during the interview?

However, I agree with him that this is something the government must do.

Handing out money and allowing Malaysians to spend these sum of money on short-term desires will not improve their long-term lifestyle. I covered this in my previous topic on poverty.

What should we do?

In order to prevent our money from evaporating overnight, here is what I would do:

1.      Invest in stocks and other assets

Despite the high volatility in the market, especially in the stock market, I continue to invest periodically. I am not really a stock picker; however, my approach is using the Dollar Cost Averaging. I am constantly invested no matter the market is up or down.

By staying in the market and with proper asset allocation, I am not too worried if the inflation stays high. Companies that provide commodity goods and services will perform well in a high inflation environment.

However, a word of caution. I would be very careful with companies with low Gross Profit margin, as inflation will also affect the cost of goods sold.

2.      Invest in assets outside Malaysia

As mentioned above, helicopter money could devalue the worth of Ringgit Malaysia. Most Malaysians are investing solely in Malaysian assets via EPF.

I invest in assets outside Malaysia or assets that are not affected by the Ringgit. You can easily invest in offshore assets via unit trust or through robo-advisors.

I also invested a little in cryptocurrency because I personally see the value in blockchain technology.

Do note that the above is just a sharing of my own personal investment strategies and not meant to be some advice. If you need proper advice, book my time for a free discovery meeting.

3.      Invest in yourself

As cliché as it sounds, knowledge can’t be taken away from you. Facing a financial setback is only temporary if you have the skills and experience to steer yourself away from the unfortunate event.

There are many online courses available especially since the start of this pandemic. However, do check the credentials of the trainer, here’s a guide for you to follow.

My colleagues are also conducting a workshop for young adults soon in December, you can check them out here if you or your friends are interested.

Conclusion

As mentioned, this is not a blog on politics. We have to think critically if a news article is politically motivated or not. I agree that handing out helicopter money will benefit Malaysia to a certain extent, however, it must be controlled and executed properly.

As an individual, we can’t do much about the country’s policy, but we can definitely adapt and change our strategy to maneuver through these trying times.

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