Racial divide a myth as racialism is not the cause

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Racial divide a myth

by Ajit Singh Jessy 

SCANNING the various websites and the comments from readers, one would think that racialism pervades our society and daily life. It is also made out to appear that we are about to have racial riots and that there is an insurmountable racial divide.

In my view, this is far from the truth and largely exists in the minds of the writers and may, in fact, be reflective of their own racist views and upbringing.

The issue of scholarships and comments by Datuk Seri Mohammed Nazri Abdul Aziz that Ibrahim Ali is a clown and so forth, are twisted to imply that racialism is the cause.

Scholarships, of course, must be offered to those with good academic results, as well as deserving cases, who may not have the best results but need assistance.

I am not aware of any time in our history where scholarships were given automatically to those with the best results only.

Other factors have always been weighed in and it is not possible for scholarships to be given to all.

In the United States, too, at one time, African-Americans were given special consideration in education and jobs. In India, this is widespread, with some so-called backward classes committing suicide to ensure that they are given special privileges in education and that places are reserved for them in institutions of higher learning.

When Nazri said Ibrahim was a clown, he probably meant that Ibrahim should not be taken seriously.

We still go to Malay weddings, kenduri and lunch with our Malay colleagues and they attend the functions of others. We should not make accusations of double standards at the drop of a hat.

Such accusations imply that others should be allowed to make similar sensitive statements. What would be the end result?



Tension and fear. How does this help the cause of nation- building? These racial critics talk about fairness but are blind to the fact that continuous tit for tat does not serve any purpose.

The views of people like Ibrahim should be ignored.

This talk of a threatening racial divide does not exist in our daily life. You can go to any government department, where the Malays form the majority, and yet, they will not attend to a Malay first but to everyone by turn.

I go to a Malay stall for lunch and there is always a long line of customers from all races and yet, the woman will serve you by your turn. She does not ask the Malays to jump queue just because they are of the same race or religion.

So, what are these critics complaining about discrimination being institutionalised?

You can walk down any street and no one will call out by your race but address you politely according to your age or gender, such as adik, kak, pakcik or makcik. You will not find this if there is a racial divide.

My legal firm has Chinese, Malay and Indian staff. I see them going out for lunch together, celebrating birthdays and visiting one another's homes during festivals.

In fact, we feel most at home when we go to some homes for Hari Raya because the family will attend to the non-Malay visitors first and even remove the beef dishes from the table.

This is the reality of multiracial and multireligious Malaysia and the said behaviour reflects how we live together and not accommodate or tolerate one another, as these misinformed racialists will have us believe.

I think it is time for these mischievous and self-appointed experts on racial issues to come down from their ivory towers and lead a normal life, by sincerely intermingling with one and all.

These writers are in fact creating problems by passing off their prejudiced views as those of the majority of Malaysians.

To compound matters, there are former Malaysians who give their opinion about how this country is headed for racial and financial disaster, and their views are given wide circulation through the Internet. While I welcome different views, it is not proper for these ex-citizens to behave as though only they know what is best for our country.

Leave that to us, and please, take care of your adopted country, where you probably cannot even stand for elections and do not have the numbers to make a difference to the election outcome.

AJIT SINGH JESSY
Penang

The Renminbi’s Journey to the World

As China's currency becomes more popular internationally, the country will have less need to hold US dollar assets.

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BEIJING – Recently, HSBC bank released an upbeat survey predicting that China’s currency, the renminbi (RMB), will become one of three global settlement currencies (alongside the dollar and euro) sometime this year. It seems that the RMB’s internationalization has been progressing without anyone really noticing. The key remaining questions concern whether or not the RMB will become an important international currency anytime soon, and whether it is poised to pose a serious challenge to the US dollar’s domination of the international monetary system.

 

China has made progress in the use of the renminbi (RMB) as a settlement currency [GALLO/GETTY]

An international currency is used and held beyond the issuing country’s borders, and plays the role of unit of account, medium of exchange, and store of value for residents and non-residents alike. Certainly, there are many potential benefits for China to be gained from the RMB’s internationalization:

·        Elimination of exchange-rate risks to which Chinese firms are exposed;
·        Greater funding efficiency for Chinese financial institutions, thus strengthening their competitiveness in global financial markets;
·        A boost to China’s trade with its neighbors, owing to the reduction in transaction costs;
·        Less need for China to hold US dollar assets and risk capital losses on the country’s foreign-exchange reserves;
·        Eventual status as one of the world’s major reserve currencies, which would provide China more freedom to maneuver in domestic and international economic policy.

China’s enthusiasm for RMB internationalization since 2009 partly reflects its frustration with the lack of progress in reforming the international financial architecture, and with the state of regional financial cooperation. Chinese officials believe that RMB internationalization is a way for China to set its own agenda without being overly constrained by external conditions beyond its control.



Thus far, China has made significant progress in the use of the RMB as a settlement currency, in the issuance of RMB-denominated bonds, and in signing currency-swap agreements with foreign central banks. RMB deposits in Hong Kong are growing exponentially.

Despite these achievements, however, RMB internationalization could still easily go awry. For example, various incentives have been provided to encourage enterprises to use the RMB to settle transactions. But, with an undervalued exchange rate and strong expectations for the RMB to appreciate in the future, foreign importers of Chinese products refuse to use the RMB to settle transactions, while foreign exporters are happy to accept RMB. As a result, even with the same trade balance, China ends up with more foreign-exchange reserves, though using the RMB as a settlement currency is supposed to reduce their accumulation.

Indeed, so far, RMB internationalization has shown a clear pattern of asymmetry – and not only as a settlement currency for China’s imports, but not for exports. RMB-denominated bonds meet strong demand, yet non-residents have no great incentive to issue them. And, while foreign lenders are happy to extend RMB loans, they are not welcome by foreign borrowers. Given strong expectations of RMB appreciation, internationalization will inevitably lead to a serious currency mismatch, with possibly detrimental consequences for China’s welfare.

A more fundamental problem for RMB internationalization is what it implies for China’s capital controls. Although the internationalization of a currency is not tantamount to capital-account liberalization, the degree of internationalization is conditional on capital-account liberalization. In fact, internationalization of the RMB has opened a new hole in China’s wall of capital controls. The big increase in RMB deposits in Hong Kong is a case in point.

When a currency endures a prolonged process of one-way appreciation, speculative capital aimed at exchange-rate arbitrage is bound to seek all chances to flow in. Hot money will increase currency appreciation pressure and complicate macroeconomic management. The profit-taking by speculators at the end of the game will lead to huge welfare losses to the recipient country, in this case China.

Fear of hot money was the main reason why China refused to de-peg the RMB from the dollar until July 2005. While China did decide to allow the RMB to appreciate gradually after that, it has relied on capital controls to prevent hot money from flowing in. The controls are leaky, to be sure, but they have worked (so far), which is why China has effectively maintained macroeconomic stability over the years.

The key objective of China’s capital controls is to prevent non-residents from holding domestic RMB-denominated assets that are unrelated to trade and long-term capital flows. But RMB internationalization encourages non-residents to hold more RMBs and RMB-denominated assets. As a result of RMB internationalization, RMB deposits held by Hong Kong residents have reached RMB370 billion ($57 billion), and the amount may reach RMB1 trillion by the end of the year.

One might wonder what difference there is between hot money and RMB deposits held by non-residents. The answer depends on why non-residents hold these deposits. The attraction of the RMB should come from China’s strong economic fundamentals and faith in its economy. If it comes from expectations of RMB appreciation, the success of RMB internationalization can be easily reversed and will cause more problems for China’s monetary authority to solve in the future.

Fortunately, China’s monetary authority has already noticed the subtlety of the distinction between legitimate demand for RMB-denominated assets and hot money. This means that the pace of RMB internationalization could become more measured than international investors have expected.

While internationalization of the RMB is necessary (and inevitable), it should be guided by market principles and pursued in a cautious manner. To get the sequence of policy adjustments right is vital. In any case, the RMB’s path to becoming a truly international currency promises to be a bumpy one.

By Yu Yongding, currently President of the China Society of World Economics, is a former member of the monetary policy committee of the Peoples' Bank of China and former Director of the Chinese Academy of Sciences Institute of World Economics and Politics.
 

Copyright: Project Syndicate, 2011. www.project-syndicate.org

They can try to ‘delay and pray’ but the euro is running out of time!

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As a doomsayer from the start, who has written several times on the subject, I have recently been reluctant to burden my readers with more jeremiads about the euro.

'Why is the euro in crisis? Because it was fundamentally flawed at its inception' Photo: GETTY

But fasten your seatbelts. Here I go again. My excuse is that this crisis keeps surprising the unwary. There is so much to say that I will have to have several bites.

Before we can find solutions, which I will discuss at a later date, first the causes. Why is the euro in crisis? Because it was fundamentally flawed at its inception. Only good luck, strong economic growth and enlightened economic management could keep it together. In fact, the eurozone has had to suffer the opposite of all three.

Giving up sovereign currencies is a serious challenge. Exchange rates act as a safety valve. When you remove them, the pressure either has to be reduced or it will find some other way out. In a fixed exchange rate system, such as the ERM, currency speculation could and did break the system. Advocates of the euro project drew comfort from the fact that, by contrast, a full monetary union is immune from such attacks.

It was recognised that economic and financial pressure might still find an outlet as countries which diverged from the core had to face higher bond yields. But this would be a good thing. The prospect of it should serve to restrain them. It wasn’t imagined, though, that strain in the bond markets could threaten the stability of the euro itself.

 Failures

Four things went wrong. The first two were private sector failures. First, far from reacting to their newly shackled state, Spain and Ireland went on a private sector spending spree. (Meanwhile, in Greece the government led the bonanza.) Second, in all these cases, the bond markets were hopeless at foreseeing possible difficulties and imposed bond yields only marginally higher than on Germany. Accordingly, they provided no restraint at all.

The third and fourth were failures of government. The authorities presided over an extremely shaky banking system, acutely vulnerable to shocks. And their policies over many years resulted in a high government debt to GDP ratio, not only in the peripheral countries, but also in the supposedly solid core. In common with almost everyone else, the European authorities grossly underestimated the possibility of sovereign default as a realistic threat and market worry, and underestimated its capacity to cause a full scale banking crisis.



The fact that the political elite ploughed on with the euro project was the result of profound arrogance. Where possible, electorates would be denied the chance to say whether they approved of the euro and other aspects of integration. Where they had to have their say, they would be compelled to go on voting until they said “yes”. The current crisis has the same roots. The project’s difficult economics would be overcome by the politics. The Brussels establishment would ensure that everything turned out all right.

But it hasn’t. Now the economics threaten to overwhelm the politics. Greece’s sovereign indebtedness is so high that it is impossible to see how it can honour its debts without outside help (ie. gifts). And the economy will go on contracting for years. There will have to be “an event”. The only issues are when this will happen; who will pick up the tab; and what it will be called.

 Nomenclature

This being the European Union, nomenclature is extremely important. Of course it won’t be called a default – I doubt it will be called anything beginning with “de”. Bad things begin with de – like decline and defeat. It will be called something beginning with “re”. Good things begin with “re”, including rebirth and renewal – and restructuring and reprofiling. But default it will be.

Who picks up the tab is important because the bill could seriously undermine some banks. Remarkably this threat includes the ECB itself because it has taken on a large amount of Greek debt. The rows over the bill are likely to delay any sort of solution and to poison the atmosphere between member states. Meanwhile, the fate of the European banking system will be hanging by a thread.

This is why the “when” issue is so important. The current approach is to try to stave off the event until things get better. You will notice that this bears a striking similarity to the sophisticated strategy adopted by British banks in the face of dud commercial property loans, namely “delay and pray”. Mr Micawber had the same idea but expressed it differently.

So even though the markets cannot cause the euro to break up by exchange rate pressure, they can cause an internal financial crisis worse than any currency panic. The prospect, or the reality, of such a crisis could yet cause some European leaders to precipitate the end of the euro as we know it.

By Roger Bootle who is managing director of Capital Economics and economic adviser to Deloitte.