Recently, a lot of people been talking about “BNM should print more money and hand the cash to Malaysian to help the current economy.” This topic went viral after Deputy Youth and Sports Minister Wan Ahmad Fayhsal Wan Ahmad Kamal proposed for Bank Negara Malaysia to print more money on radio station BFM interview on September 16.
Wan Ahmad Fayhsal during the radio interview commented that the various initiatives proposed by the government during the Budget 2021 including letting the rakyat to withdraw money is considered as not a long term solution. He however, offered his solution to fix the economy by asking BNM to print more money.
He suggested that BNM could print ‘helicopter money’ as a solution for the country’s economic predicament
In the interview, he said as quoted “We can couple this (forgiving debt) with a helicopter money monetary policy, where the central bank can directly print money and give it to the people so that they can spend it.”
However, former Permodalan Nasional Berhad (PNB) CEO Jalil Rasheed has rejected the idea as it will cause inflation
Ex-PNB CEO Jalil Rasheed quickly responded to Wan Fayhsal’s idea and told that a ‘helicopter policy’ refers to the act of printing a large sum of new money and then distributing it among the public to stimulate the economy during a recession can backfire badly.
“Printing money is not a solution for Malaysia. It drives down the currency value – it’s already weak enough – when you have too much in circulation,” he told Malaysiakini.
If the government printing more money, it will cause inflation
Nothing is ever totally free, even free money. Printing more money won’t help stimulate the economy, but it will cause inflation. When there’s too much money in the system, prices go up. According to Kent Smetters, professor at the Wharton School, when central banks do this, it’s call monetizing the debt.
Here’ are some of the reasons why printing more money is not the best solution:
1. Printing more money doesn’t increase economic output
It only increases the amount of cash circulating in the economy. If more money is printed, consumers are able to demand more goods. But if firms have still the same amount of goods, they will respond by putting up prices. In simple term, it will just cause inflation in the long run.
2. Fall in value of savings
If people have cash savings, then inflation will erode the value of your savings. In a few years, your savings would have become worthless. Inflation can also reduce the incentive to save.
3. Prices will frequently change
If inflation is very high, then it becomes harder to make transactions. Inflation will lead to prices frequently change. For instance, if you didn’t buy bread straight away, it would become too expensive the next day.
4. Uncertainty and confusion
High inflation creates uncertainty. Periods of high inflation discourage firms from investing and can lead to lower economic growth.
For example, Zimbabwe and Venezuela are struggling with hyperinflation
For worst case scenario, we can see high inflationary countries like Zimbabwe and Venezuela. It all comes from the monetizing the debt.