The signal by Central Bank to issue bonds at a coupon rate
of eight per cent per annum is described as an attempt to
reduce the liquidity in the domestic market. It is hoped that
the issue will mop up some $700 million.
Looked at from another perspective, the Government is seeking
to borrow the money from those who have liquidity (cash),
and will repay the sum after eight years, beginning November
30, and maturing November 30, 2014. It is willing to pay the
lender eight per cent per annum, with distributions of interest
earned, every six months.
There have been submissions by experts in the field that
the increases in prices of goods and services have been fuelled
by the abundant flow of money into the domestic market. This
they say, has increased purchasing power, and has prompted
Other experts refute that the relationship is so simple.
However, the simple view is that if people have more money
in their hands, they will easily pay higher prices, since
the money is flowing like water. Hence, if we stagnate the
flow, by pulling out the money, we may bring down prices.
But all of that is theoretical, and because there are many
interrelations, it is not always simple to interpret what
will be the net effect for us. It is about money supply and
To better understand how these theories work, perhaps we
need to revisit some fundamentals and recognise the three
things that is money.
Money is used as a:
* means of payment or a medium for exchange,
* medium to transport purchasing power into the future,
via savings, often referred to as a store of value,
* means of quoting prices for goods, etc that allows comparison
The major weakness of money is its use as a store of value.
Remember when the dollar was representative of a certain value
in gold? In those days when prices went up, the price of gold
also went up. Thus, there was an equitable distribution of
value to those who held money as well as those who held gold.
The store of value remained sound.
Since our dollars are no longer weighted in gold, how does
our store of value relate in the global market?
But this is a question for other experts in economic self-sufficiency.
Our immediate concern, as small investors with small amounts
to set aside for the future, is to preserve store of
value. We need to know what rates are available now,
and some intelligent guesswork hints that if banks are willing
to pay more, those rates may curve upwards. But thats
an IF, with inflation as a factor!
While the mopping operation goes into full swing, do you
know of an investment option that pays better than eight per
cent for eight years, for small investors?
Continued next week