[GOV/PRE] Don't sink too low! :P
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by Vikta
There has been a lot of intelligent discussion on our economy in an article here, and as Minister of Finance I feel I need to respond and address each individual one.
Hireshmont Vellos makes an excellent point. The monetary/labor cycle in a real life economy is circular: a low currency causes comparatively low wages which increases exports, which would in turn drive up our currency. Our labor wages would then become more expensive, causing our exports to fall, and driving our currency back down again, which brings us back to the start of the cycle.
Hence, because our currency is comparatively low in value, we should capitalize on this and keep it low.
Unfortunately, this only works in real life, where there is a restriction of freedom of labor movement.
In eRepublik, people are free to move, and because they are not 'stuck' here working for lower wages, most will go abroad to seek better paying jobs. As such, our labor supply will be restricted or will even shrink.
And with the advent of the black market, cheap food is hardly a factor in sustaining labor.
We should be keeping our wage low to increase foreign investment is, but we have enough companies present in Malaysia, with a few of them shutting down due to a lack of labor. Investment will not come if there is not enough sustainable labor, regardless of how cheap labor is.
Now, I am not saying that we should increase the value of the MYR, but keeping the MYR at 0.007 purely because we want to keep our comparative wage low is not the solution, but a variable that we should adjust and tinker with to get the right balance between the right amount of labor and the right amount of foreign investment. After all, what is Newton's third law?
What I think the Central Bank should do is to continue stimulating the economy in ways that will increase our labor force (not neccesarily through high wages), while keeping a reasonable exchange rate to draw in investment. The exchange rate must reflect a reasonable wage that balance between the price that the labor market demands and the price that the investors demand.
Finally we have some intelligent discussion on this issue! (other than me and Nagyzee on private IRC chats) Back to you Hireshmont Vellos 😉
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I think users are pretty irrational in general. Globally a few thousands but still relatively few people decided to move to Romania, Indonesia and Brazil because of the outstanding wages.
Also as we have relatively few companies right now, we can still lower the wages and set them according to the 0.008 level with good enough communication and cooperation. We have to either try this or push the exchange rate back to 0.007.
Btw right now with the 0.008 rate our monetary seems to be pretty much frozen.
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Thanks a lot!
0.008 I think is fairly sustainable and natural, I just think that pushing it to 0.007 would produce a stimulus. In natural market equilibria systems, the economy only grows through cyclic fluctuations, population growth, and random factor innovation. The first we already have, the second is slow, the third is essentially moot in eRepublik.
Pushing the rate to 0.007 will help us grow as an economy and accumulate more capital. For an RL example, see China. For an eRepublik example, well, I would suggest South Africa, but it has been destroyed. We practically doubled our purchasing power and GDP per capita through this method.
The exchange rate should reflect a reasonable balance between, yes, investors/speculators, wages/companies, but also a third factor: taxes/government. Government is a natural market phenomena, we shouldn't delude ourselves into thinking that the government has no economic role. If tax revenues rise, expenditures should also rise, or else we will see deflation. An easy method of controlling the exchange rate, preventing deflation, and bolstering governmental position is to actively engage the monetary market with tax revenues.
Q2 food for 0.055 gold, PM me!