Categories
Economics History & heritage

[1280] Of the European Exchange Rate Mechanism, the Asian Financial Crisis and the unholy trinity

Almost 30 years ago, the European Exchange Rate Mechanism (ERM) was established to promote monetary stability among 12 members of the European Commission (EC). All participating states agreed to limit the variability of respective currency to 2.25% band on either side of a central rate. Later members were allowed to have their exchange rate to gyrate within a 6.00% band from a central rate. The ERM was a tool to converge the monetary policy of the 12 states and eventually, the adoption of a monetary union. Between 1992 and 1993, the ERM suffered a crisis that in a way, is similar to the Asian Financial Crisis that began exactly a decade ago.

In 1989, an EC committee laid out a plan to realize the European Monetary Union (EMU). The EMU would have an European central bank to manage a unified monetary policy for the EC. This ultimate convergence of a myriad of independent monetary policies would abolish all national currencies and eventually create an EC-wide currency.

Before the EMU could be established, all 12 members of the EC (namely, Germany, France, United Kingdom, the Netherlands, Belgium, Italy, Spain, Denmark, Portugal, Ireland, Luxembourg and Greece) had to approve the plan. In 1992, the Danish people almost rejected the EMU in a referendum while opinion poll in France was unconvincing. This brought the EMU into question, hurting confidence in the EMU and the ERM.

Currency speculators started to short sell various European currencies, betting for currencies devaluation. Regardless whether it was a self-fulfilled prophecy or a natural outcome, massive devaluation occurred and that forced many countries to drop out of the ERM band. Many fought but all lost. The British pound was one of them. The Malaysian central bank, the Bank Negara tried to defend the pound but it proved to be a USD4 billion futile adventure. In my opinion however, none other fought more valiantly mad than Sweden.

In effort to stop devaluation of the krona dead on its track as well as to teach the speculators a lesson, the Sveriges Riksbank, the central bank of Sweden, raised interest rate up to an astronomical 500%. This shocked a lot of people, including the speculators. The crazy monetary policy worked for awhile until the economy started to so a sign of stress. With a long run rate like that, not too many economy would survive long and so Sweden relented, quit the battle and forced to float the krona.

The story repeated itself in other European countries. The central banks of Portugal and Italy initially tried to defend their currencies only later to admit defeat. About five years later, similar story struck Southeast Asia.

On July 2 1997, after sustained pressure of devaluation, the Bank of Thailand gave up the battle to defend the baht. As history has recorded, the baht lost more than half of its value, from 26 baht to a US dollar in late June 1992 to 55 baht per US dollar in January 1993.

A professor of mine told my class that in late 1997, he did not understand what was going on but he did watch everything slipped away. He continued by saying nobody knew what exactly caused the crisis. But ten years after Camdessus looked on Suharto, we might have learned a thing or two from the crisis.

For me, it offers a real life example of the unholy trinity. The unholy trinity is the desire to have a pegged currency, free flow of capital and independence in monetary policy. One can only have two of them, not all three. When there is a violation of the rule, trouble looms.

In case of Sweden, the Sveriges Riksbank wanted all three. Under intense pressure and eager to move forward, the peg had to go. For Malaysia, in order to move on, free flow of capital had to go. Or rather, was chosen to be expendable. The Southeast Asian country imposed capital control in at the peak of the crisis and pegged its currency to the US dollar in 1998.

Of course, that is not the only lesson that could be learned from the era of irrational exuberance. But if the next currency crisis strikes, would anybody remember the lessons learned in the past?

Categories
Activism Environment Photography

[1279] Of the tapir to hike the Klang Gate

It is two hours to Monday and I am already suffering from Monday blue. I browsed through my album and this tapir lightened things up a bit for me.

Some rights reserved. By Mohd Hafiz Noor Shams

The Path Finders of the Malaysian Nature Society is organizing a day hike to Bukit Tabur at the Klang Gate some time in the coming September. I am responsible to organize the trip and so, currently, I am looking at September 8, the last Saturday before the Ramadan begins.

At the same time, I am hoping for a haze-free day. Kuala Lumpur last Friday was shrouded with haze and that worries me.

In the meantime, I need to do some recon (interestingly, some people call it recce) work in the area and am planning to do it on July 21 and that is a Saturday. Anybody want to join me for a day hike in July?

Categories
Activism Environment Photography

[1278] Of visiting Kota Damansara Community Forest Park

I finally visited the Kota Damansara Community Forest Park yesterday. The Malaysian Nature Society was organizing an environmental program for girl guide brigades from several schools around Kuala Lumpur and Society needed hands. I helped out and in doing so, I fulfilled a promise that I made to myself not too long ago.

When I first saw it, I was impressed. Whether it is a large pond or a small lake, the view is marvelous in the morning with slight mist in the air, with dead tree trunks coming out from the bottom of water bowl. Only the sky was uncooperative by being cloudy but with only a little hint of turquoise.

Some rights reserved. By Mohd Hafiz Noor Shams.

Closer inspection however brought me disgust. Trash was everywhere. Instead of being protected as the oldest forest reserve in Malaysia, at the moment, it is a mini-dump yard.

Categories
Liberty Society

[1277] Of defining a liberal Malaysian nation

A nation is not a state but a nation-state is both a nation and a state. There are stark differences between nation and state but not many differentiate the two concepts. Worse, at times, the two terms are used interchangeably. Comprehension of the two terms is required if one is to grasp the impetus for Bangsa Malaysia — transliterally, the Malaysian race; more accurately, the Malaysian nation — and further, why the traditional nation-state concept based on ethnicity and religion is outdated.

A nation is a community whereas its members, individuals, share a common identity. That identity in turn is derived from history, through similarities in languages, ethnicities, religions, or in the broadest sense, culture. It is through this shared identity which nationalism arises. A nation is therefore fluid with no concrete border by itself. As the community expands or shrinks, so does the nation.

A state is more solid in nature and changes to its borders usually involve macro-events such as wars or referendum which individuals agree to come together or part ways. It is an institution that governs a set of territories with the monopoly of legitimate use of physical force within that territories.

At some points in history, nations started to demand their own states. The demands later introduced the concept known as nation-state. In such concept, a nation has sovereignty over a set of territories. This has been the basis for the foundation of a number of countries in the world including but not limited to, at its inception at least, many European states, the Arab states, China and Japan.

For a multicultural state, the concept of nation-state is hard to apply; the central question is what is the shared identity?

This could be a very divisive question. Needless to say, members of a multicultural society come from diverse background and more likely than not, identities are not shared. Differences may be more pronounced than any commonality exists among communities that a nation-state depends on.

When there is little or no shared identity and with greater differences instead, there may be an urge to create an artificial nation to justify a nation-state. For those that favor a multicultural state, this is a natural reaction to such absence because the lack of common identity coupled with the ideals of nationalism of various groups tend to divide a state into smaller states, sometimes violently.

Nationalism calls for one land for one nation. Balkanization may be the manifestation of nationalism within a multicultural state in its worst form. Events of the 1990s and early 2000s continuously broke up the multicultural, or within our context, multinational, Yugoslavia. Indeed, Yugoslavia is not a special case. The Astro-Hungarian Empire and the Ottoman Empire were other victims of nationalism. If I may say so, the breaking up of the Ottoman Empire, the former political center of the Muslim world is the reason why Islam is hostile to a certain kind of nationalism, fuming at how religious nationalism was undone by ethnic nationalism.

Malaysia is another example of a multinational state. Nationalism may have done to Malaysia to what it had done to the Ottoman Empire though never closer to the latter’s magnitude. At its inception in 1963, 14 states came together to form a new federation. The question of shared identity, of nationalism, quickly forced the expulsion of one of its states, Singapore, out of the federation short of two years later. Four years after that, the worst racial riot — May 13 incident — in Malaysian history erupted. The riot could have further broken up the new federation. Wary of repeating the same incident, the state, the federation, requires a common identity to create a sense of oneness. With absence of a shared identity, it becomes necessary to create a common identity. It becomes absolutely necessary to synthesize existing nations into a one or altogether create a new nation.

Indonesia in the past created a common identity which was imposed from the top to the bottom. To a lesser degree, Malaysia is pursuing similar path. This is apparent through the National Language Act of 1967, the National Culture Policy of 1970s and more nakedly, the introduction of Bangsa Malaysia during the Mahathir administration.

Despite years of cliche, Bangsa Malaysia has not been properly defined and its definition differs across individuals and groups. At the moment, the result of Bangsa Malaysia is mixed, probably because it is a work in progress but one thing is clear — Rome was not built in a day.

In a new world where free flow of capital and labor is becoming common and necessary, a nation will eventually come into frequent contact with other nations. These interactions will inevitably change the composition of the nation as well as the society. The more liberal a society is, the faster a state turns into a multicultural society from a monocultural one as liberty attracts; from uninational, it becomes multinational. These interactions do offer unprecedented challenges toward effort of building a nation-state and society becomes more diverse.

A common identity is a crux of a nation-state. The identity more often than not demands assimilation instead of co-existence and that tends to create a tension among groups that feel the chosen common identity is sidelining theirs. Assimilation is an inescapable issue from the mainstream consciousness if there are large minorities within a multicultural state. In Malaysia, the debate on language and vernacular education signify this tension.

The forces of globalization are rocking the ground which nation-states sit on. The Netherlands for instance is fast becoming a multinational state where the meaning of the word Dutch, in term of citizenship, encompasses emigrants from all over the world. An Algerian could be a Frenchman while a Turk could well be a German. The line between member of nation and citizenship of state has been blurred that some often do away with the distinction altogether. Perhaps, this is a new nation of nations but it could not have been possible without the tolerance required for co-existence and not forced assimilation. In other word, a liberal nation. Lately however, a surge of nationalism and xenophobia are undermining the creation of a liberal nation.

For Malaysia, the Malaysian nation concept is an effort by force towards a new nation; an artificial shared identity. For it to succeed, it cannot be a nation based on ethnicity or religion. Dependence on such nationalism is detrimental to the state where it encourages development of very different nations which in the end, only balkanization is the logical solution. For the Malaysian nation to stand the test of time, it has to be a nation based on an universal idea, a philosophy — liberalism — where differences are tolerated or even cherished.

With a liberal nation, a liberal Malaysia practicing liberal democracy, one does not need to artificially create a shared identity. All one has to do is observe the non-aggression axiom — every man is free to do that which he wills, provided he infringes not the equal freedom of any other man. Through interactions in liberal settings, a shared identity will be grown organically, spontaneously.

All one needs to do is to respect the smallest unit of the society or nation — the individuals. A nation, after all, cannot exist without individuals. If the sovereignty of the individuals is disrespected, individuals would come together to form groups to demand sovereignty for nation-state for each group, breaking apart a multicultural state.

Categories
Solar car

[1276] Of the ninth generation solar car

And it is named Continuum.

It is set to be unveiled this July 14 in Ann Arbor.

The University of Michigan is the most successful solar car team in North America and one the most successful university solar car teams in the world. The Dutch team still riddles Michigan in the global arena. I hope Continuum could finally break the Dutch monopoly in the World Solar Challenge in Australia in year.

Go Fast. Go Smooth. Go Blue.