Saturday, December 17, 2022

Wisdom of the Crowd - New Issues

1. Should MAS introduce digital payment to replace cash?

2. What is a more convenient form of digital payment?
3. Should we have multiple payment platforms?

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WOTC - Moderate cost of living

Wisdom of the Crowd: 84% of the respondents said that the PAP govt will not be able to moderate the cost of living for the people.

Proof of concept for a central bank digital payment platform

 The central banks in many countries are trying to promote digital payments to replace cash payments (i.e. paper notes and coins).

The goals are:
a) To reduce the cost of handling paper notes and coins
b) To combat counterfeit and fraud
c) To improve efficiency in handling retail payments.

So far, none of the central banks have succeeded. The central bank in China and a few other countries have made some progress, but they are still far from achieving their goals.

I offer this suggestion to a central bank to achieve their goals.

Digital payment by central bank

 I have written several articles on how a central bank can promote digital payments.

I am now looking for a central bank that is interested in my solution.

Friday, December 16, 2022

Pricing of new HDB flats

There is a lot of controversy over the pricing of new HDB flats (also know as built-to-order or BTO flats).

Recent figures released by the government showed that the land cost comprises about 60% of the total cost, while construction and other costs takes up the remaining 40%.

The government provides a "subsidy" and prices the new HDB flats at below cost. I do not know how much is the subsidy, but it appears to be less than 15%. After the subsidy, many people still complained that the prices are too high and unaffordable.

The government also provides additional grants to eligible home buyers, based on a complex system that depend on many factors peculiar to the individual buyers. I find it difficult to follow and understand the grants. But the figures released by government, after applying the appropriate grants, show that the actual prices are "more affordable".

Some people, which I will describe as "the other side", argued that the government should not apply the market value of the land, as the land were acquired at extremely low cost in the past.

The government ministers argued that it would be unfair to use a lower value, as it would badly impact the value of the existing HDB flats already owned by the earlier buyers.

It appears to me that "the other side" wants the new HDB flats to be priced lower, so that they can enjoy a capital gain when they sell the flat in the future, as the previous generation had enjoyed.

To make the issue more complicated, some people argued that the "owners" do not "own" the flats, but they are just "lessees". I find this argument to be not helpful.

I will now give my personal view on this controversy. I do not wish to take any side - not for the government, nor for the "other side".

I want to suggest that both sides are giving answers to the wrong question, which is "what is a fair price for a new HDB flat".

In my view, the correct question should be - how can the government provide affordable housing to the people.

It should not be the role of government to help people to make a capital gain on "owning" a HDB flat. This was the approach taken in the past, but it is the source of the current controversy.

To provide affordable housing, the government should offer suitable flats on rental that takes up 20% (say) of the median family income. The rent can be adjusted every one or two years according to changes in the median family income. The rent is market related, minus the speculation in property prices.

As the government owns most of the vacant land in Singapore, they can build the affordable rental flats to meet the demand of the population, especially to the young people who start families every year.

The rentals can still yield an attractive source of recurring revenue for the government. It is not as large as land sale, but it is more sustainable and stable.

People who believe passionately in investing in property can still opt to buy a HDB flat or private property and pay the market rate. They cannot complain that it is unaffordable, as they have the choice of renting an affordable HDB flat.

I wish to offer this idea as a solution to the controversy.

Tan Kin Lian

Breakdown of internet connection

 If we rely on digital payment and stop cash payment, we need to deal with the incidents when the internet connection is not available. This is how it can be handled.

Anonymous wallet

Some people do not like digital payment because they are afraid that the government can trace their spending.

I do not understand this concern. Here are my reasons:
1. If the spending is legal, there is no need to fear that the government can track the spending.
2. There are several hundred of million people spending every day in a large country. The government does not have the reasons to track the spending.

The consumer may be afraid of being tracked, if they are spending the money for illegal purposes, such as money laundering, financing of terrorism, paying bribes, buying of prohibited goods.

These are not ordinary transactions.

Perhaps some people want to keep their payments confidential for some special reasons, and these payments are not illegal.

For these cases, the customer can use an anonymous e-wallet. This is a e-wallet that is not linked to a bank account, or a mobile phone or other forms of identifying the owner.

The customer can top up the anonymous e-wallet at a kiosk or retail outlet that provides the top up service. They can also transfer money into the e-wallet by a bank transfer.

The e-wallet can be used to make digital payments, without disclosing the identity of the payer. The e-wallet can be transferred to any person.

Apart from its use to make anonymous payments, the anonymous e-wallet can be issued to children or older people who do not have a bank account.

To prevent illegal payments, there is a cap on the daily limit that can be paid out of an anonymous e-wallet, e.g. $500 or less.

I believe that this will provide an avenue for making confidential legal payments. It should dispel the concern that digital payments can be tracked by the government.

Tan Kin Lian

Land banking scams

Land banking scams have occurred in Singapore on many occasions in past years.

The promoter sells plots of agricultural land in western countries at a price that is a small fraction of residential land prices in Singapore. A typical plot is $5,000 sf and is sold at a price of $80,000 or $16 psf.

These land schemes are promoted at high profile marketing events in Singapore. The potential buyers are told that the land will be worth 3 to 5 times of the current price, when the promoter gets approval from the authority to convert the land into residential use. This would typically take 3 to 5 years.

Many buyers bought the land on that promise. They found, after waiting for 3 to 5 years, that the approval was not given, and that the land that they bought was useless. They were not able to sell the land at their cost, as they have paid a high price for the land.

The typical value of agriculture land at the time of purchase was $1 psf. They had paid 16 times of the actual market value.

What can the government do, to stop this type of scams?

Here are the typical responses from well educated people:

1. There is nothing that the Singapore government can do, as the land is located outside Singapore and is outside the jurisdiction of the Singapore law.
2. The best way is to educate the public about these scams, so that they do not fall in the trap.

I disagree with these views. Here are my reasons.

1. The Singapore government could pass a law to require marketing of certain types of investments, e.g. sale of land in overseas countries, to be approved by a relevant authority. This could also apply to certain types of investments that are the subject of frequent scams.

As most of these transactions are marketed in Singapore, the requirement to obtain prior approval could act as a deterrent to prevent these activities.

2. It is easy to suggest the approach to "educate" the public not to be "greedy". This approach has been suggested for several decades. They do not work. While some people may be able to detect these scams, there will be a large segment that will fall for the scams. It has happened many times over the past years.

In my view, it is the primary duty of the government to pass laws to stop criminal activities. While some of these laws cannot stop the crimes completely, they will be able to prevent them to a large extent.

All laws cannot stop the crimes totally. For example, murders still happen, when it carries a severe penalty. We cannot argue that there is no need to have a law against murder, just because it does not prevent the crime totally.

I apply the same reasoning for a law to stop land banking and other scams.

Tan Kin Lian

WOTC - Anwar Ibrahim's government

 Wisdom of the Crowd: 77% of the respondents expect Anwar Ibrahim's government to be stable as it has the support of the major political parties.

Thursday, December 15, 2022

Digital payment under a central bank

 I wrote this paper to suggest how a central bank can implement a digital payment system. This approach applies to MAS in Singapore as well.

Why is a low usage of e-CNY in China

China introduced its central bank digital currency (CBDC), also known as e-CNY a few years ago. They implemented it in phases in several cities to test the system.

They launched the e-CNY for tourists in the Beijing Winter Olympics in January 2022.

There was little report of the usage of the e-CNY. I suspect that the usage is quite low.

How does China implement its CBDC?

 This article explains how China implements its central bank digital currency (CBDC). It is an excellent article.

Earlier, I had the impression that the CBDC is implemented using blockchain technology. I was mistaken. 

This article explains that the retail CBDC uses a centralized database, which allows it to handle a large volume of transactions. This centralized database is similar to what is implemented by the private payment platforms, i.e. AliPay and WePay.

It also explains that the CBDC is integrated with the private payment platforms. 

It reinforced my earlier belief that the people in charge of the financial system in China know their business. They do not blindly follow the fad of the day.

The article explains that China has a separate project to implement smart contracts using the blockchain technology. This may be used by the payment platform at a later date, in areas where they technology is useful.

Still, there is a question. Why is the e-CNY (i.e. the currency promoted by the CBDC) not taking off? Why is the usage low?

I will share my thoughts in a separate article. 

I believe that the China government will be able to solve this challenge and that the e-CNY will become the successful model to be followed by other countries. 

Tan Kin Lian

Cost of a National Service army

Many people have the impression that a National Service army is less costly than a professional army.

I think that they may be mistaken.

It does cost a lot of money to train a full time NS army for 2 years (maybe it is slightly shorter now by a few months), and to keep them trained during the years when they are called up regularly for reservist duty.

While the full time NS men receive only a modest allowance (which some people described as a slave salary), the Singapore Armed Forces (SAF) need a large number of full time soldiers to do the training. This can be quite costly.

The advantage of the NS system is that it produces a large army of trained reservists, that are combat ready in times of hostility.

But some experts say that modern day warfare does not require a large manpower of soldiers to serve as "cannon fodder".

Modern war are fought and won with precision hardware, such as fighter planes, missiles, long range artillery. They are handled better by full time professional soldiers who accumulate skills through regular practice and years of experience.

There is also the question of the loyalty of conscripted soldiers, who may feel that they are disadvantaged in competing for good jobs against foreigners, especially if their employers prefer to employ foreigners who are not disrupted every year to receive reservist training.

There is a large cost to the conscripts in the time that they have to spend on full time training and reservist training, for which they are not adequately or fairly compensated. They are urged to do it for the "sake of the country", but they see their sacrifice being enjoyed by foreigners who do not have to contribute to the sacrifice. This cost is ignored.

I am in favor of a strong military defense. Our national service strategy had worked well for us in the first few decades of our independence, but is probably not suitable in recent years. It is time for us to review the strategy, and examine the true cost and effective of the various options to secure our national defense.

Tan Kin Lian

Wednesday, December 14, 2022

Democracy, human rights and freedom of the press

 Kishore Mabubhani made the following statements in his book (Can Asians Think) about democracy, human rights and freedom of the press.

1. American journalists do not believe in the Christian rule "Do unto others as you would have others do unto you" or "Let he who has not sinned cast the first stone". It believes that the infidelities of a politician are public property, to be exposed in every detail. But infidelities seems about the same in all sectors of society, whether in Congress or in the press corps.

2. Power corrupts. The absolute power of the western journalists in the third world corrupts absolutely. On arriving in a third world capital, the American journalists believes that he has arrived as a lone ranger battling an evil and corrupt government. He did not realize that he is behaving like a colonial proconsul demanding attention from the officials of the third world government.

3. A free press can serve as the opium of society. The American media prides itself on the ability of its investigative journalism to uncover the real truth behind the stories put out by government, big business and other major institutions. It could never stomach the proposition that it could serve as the opium of American society. But it has.

4. A free press need not lead to a well ordered society. A free press can lead to good government, but it can also lead to bad government.

5. Western journalists are conditioned by both western prejudices and western interests. the claim of "objective" reporting is a major falsehood.

6. Western governments work with genocidal rules when it serves their interest to do so.

7. Western governments will happily sacrifice the human rights of third world societies when it suits their interest to do so.

8. The west has used the pretext of human rights abuses to abandon third world allies that no longer serve their western interest.

9. The west cannot acknowledge that the pursuit of "moral" human rights policies can have immoral consequences.

10. An imperfect government that commits some human rights violations is better than no government, in many societies.

Tan Kin Lian

How fraudsters can exploit complicated schemes

Finance minister LW and his ministry create many convoluted schemes to hand out some sums of money (which TKL describes as bits and pieces) to the beneficiaries. There is the risk that some of these schemes could be exploited by smart scammers.

Here is how it can work.

Each convoluted scheme pays out a small sum of money to the recipients based on multiple conditions - income, housing, etc.
When they compute the scheme, they will say x million people quality and will receive a total of $Y million.

But the people who qualify do not know that they qualify - because the schemes are complicated.

So, when they hand out the money, the person in charges give out the benefit to a smaller number of recipients (i.e. the beneficiaries who were left out do not know that they had qualified in the first place). The money is siphoned somewhere, and nobody is the wiser (except for the scammer).

If the fraud is discovered later, it will probably be covered up, or some excuse would be created to explain why it was unavoidable.

Remember. There are many complicated schemes, with different conditions of eligibility. Many people find it difficult to keep track of these complicated schemes and to know if they qualify or not. They just have to trust that someone in the government will send them the money, if they qualify for it.

In this confusion, it is easy for the fraudster to exploit the system to siphon off some of the large sums of handouts.

There were a few high profile cases in the past where scammers had taken advantage of the government schemes to exploit the loopholes. These include:

a) Claiming large sums on GST refunds
b) Claiming large sums from Skill Credit for training of workers.

These scam show that the crooks are quite smart in exploiting the system.

The best way to avoid this risk is to device simple schemes that everybody understands, e.g. every citizen gets $X as a benefit. Everyone knows if he is a citizen or not, and if he qualifies or not.

Hong Kong adopts the simpler approach (suggested by TKL) to pay out their financial aid. It is not a perfect system, but it is simple and the risk of fraud is reduced considerably (although it is probably not totally eliminated).

Tan Kin Lian

CBDC - a new approach

 Many central banks wanted to implement a digital currency (CBDC). They blindly followed the suggestion that CBDC should be based on blockchain. That was a big mistake.

There is no need for CBDC to follow blockchain (which was the platform used for cryptocurrency). If they adopt a traditional (i.e. non blockchain) platform, they would be able to implement CBDC more quickly.

Blockchain is expensive to implement and to process. It also complicated and requires special devices, which is not available for ordinary people.

Google told me that the most widespread use of CBDC is in Nigeria. My Nigerian friend told me that the eNaira is hardly used.

China has tried to implement eCNY for several years. It also did not take off. The eCNY was officially launched at the winter olympics in early 2022. There was no further report of any wider rollout. I think the eCNY, based on blockchain technology, was not well used.

If the policy makers in the central banks, including MAS in Singapore, realize their mistake and adopt CBDC based on a traditional platform, they are more likely to succeed.

There are still many challenges to be overcome, but moving out of blockchain is the first step.

Tan Kin Lian

Wisdom of the Crowd - New Issues

1. Should the Communist Party of China change its name?
2. Should National Service be continued in its present form?

Vote in

Time to review National Service

For a few decades, I have been against the current practice of National Service. Here are my reasons.

1. It is too long.
2. It imposes a burden on our male citizens and make them loss in competition for jobs against foreigners and females.
3. It is costly to train NS men and keep them trained as reservists.
4. It is more effective, and perhaps cheaper, to have professional army, who can develop their professional over a full time career.

I support an effective defense strategy, but prefer it to be based on a professional army.

We can provide basic military training for our male citizens but this has to be for 6 months only. When there is hostility, they can be called up for refresher training. This is not perfect, but is a workable option. Several countries adopted this approach.

The recent deaths of NS men reminds the citizens at large that our current approach is not working well. Sadly, this will soon be forgotten, until the next accident and death occurs. Singaporeans respond to the news at the moment, but have short term memories.

It is time for Singaporeans to wake up. We need to re-look at our approach towards national defense. We should not continue to foster a heavy burden on our male citizens.

Tan Kin Lian

How will China solve its property bubble?

I am watching how China acts to solve its property bubble with great interest.

China is not the only country with this problem. The problem over inflated property prices also affects many developed countries, including America, UK, Australia and Singapore.

The citizens of these countries were led to believe that property assets are an excellent form of investment. When property prices rise, they expectations turned out to be correct. Properties were a great form of investment.

However, the property prices can go up to unrealistically high levels, which are beyond the reach of most citizens based on their earnings. These prices become a bubble.

We have to watch how China deals with the bubble. How can they bring down their prices to a reasonable level, without crashing the market and causes large losses to the existing home owners?

I read an article that described a possible solution. The China authority has been working on this solution for the past decade. It is not a solution that they cooked up in a hurry.

According to this article, China will be creating real estate investment trusts (REITS) that will buy the existing properties and offer them for rental to tenants.

I believe that this approach will work. Here are my reasons:

1. It is possible to set the rentals at a fair level that reflect the average earnings of the tenants. When the earnings increase, the rentals can be adjusted accordingly.

2. The rentals will be market related, but will avoid the wild swings caused by speculation and temporary shortages or over supply.

3. This mechanism will provide a fair return to the investors of the REIT and make the housing affordable to the tenants. It is market based, but exclude the excessive market speculation.

4. There are still many challenges that need to be overcome, but I find the general approach to be appropriate.

Tan Kin Lian

Tuesday, December 13, 2022

Helping the poorest in our society

A respected top civil servant, now departed, said "We should concentrate helping the poorest 5 to 10 percent of the population, instead of handing out a general largesse. .... Why tax the lower-income and then return it to them in an aid package? It demeans human dignity and creates a growing supplicant class who habitually holds out their palms. "

Someone ask the question - how do you help the poorest 5 to 10 percent without giving them financial assistance?

The departed civil servant is not around to answer this question. I will answer it on his behalf.

We can help the poorest in our society by giving them suitable and dignified jobs with a decent rate of pay.

I suggest that this rate of pay should be $12 an hour. Suitable jobs can be created for older people that are useful to the community at large, and gives them dignity. Examples of these jobs are security, guides, care givers, waiters, cleaning.

These jobs should also be made available to the unemployed, who lose their regular jobs due to economic circumstances.

These jobs can be for shorter hours, and not be physically demanding. By paying them an hourly rate, the work schedule can be adjusted to suit the service to be provided and the physical ability of the worker.

It is not costly for a community to provide these jobs, and they are helpful to the people who need these jobs to earn an income. They do not need to be unemployed and be the poorest in the community.

Tan Kin Lian

Sustainable global population

What is a sustainable population for earth?

The global population is now at 7.8 billion people. Will the earth be able to produce enough food and other resources to feed a growing population? Will the water resources be adequate?

Should the global population be allowed to grow to 10 billion, 15 billion or 20 billion?

With the current state of our technology, including agriculture, water and energy technology, we appear to be able to feed a growing population, and have enough to spare for emergencies.

We are not suffering any food shortages for the immediate future, except for the supply chain disruptions caused by the conflict in Ukraine.

However, some people argue that the population has already exceeded a sustainable level, and that the current population is causing challenges to the environment, climate and other forms of life.

It may be necessary to plan for a smaller global population to protect the environment. Maybe, a sustainable global population could be 5 billion.

This approach does not mean that we need wars and genocide to reduce the human population. Already, many people do not wish to produce children. It may be possible to plan for a smaller population, without making drastic changes to the preferences of most people.

We need a new mindset. We should not aim for more economic growth. Instead, we should aim for adequate production to meet current needs.

It also mean that people should be working less hours. They should not be competing for a bigger market share, or to acquire more wealth than others.

Life can be more meaningful, if people feel a sense of security and work to produce just enough for their needs. They will have more time to live a fulfilling life.

Tan Kin Lian

Monday, December 12, 2022

Investing in government securities

 I have written this article on investing in government securities (bond or T-bills).

Review of China Suntien (0956.HK)

 I hold 90,000 shares of China Suntien at an average cost of $6.66 HKD. The current price is $3.20 giving me a loss of 52%. My current loss is $316,000 HKD, or $55,000 SGD.

The current price in HKSE is a discount of 73% of the price in Shanghai.
China Suntien now has a price earning ratio of 5.75X and a dividend yield of 6.1%.

WOTC - Sinovac vaccine

 Wisdom of the Crowd: 65% of respondents said that they prefer the Sinovac vaccine as they consider it to be safer over the long run, compared to the MRNA vaccine, which is more effective against covid.

WOTC - Presidential election in 2023

 Wisdom of the Crowd: 100% of the respondents said that they would not vote for Ho Ching, if she runs for president in 2023. They prefer a person who can act independently of the government.

WOTC - Protests in China

 Wisdom of the Crowd: 58% of the respondents said that the residents in China were tired about the covid restrictions and that was the main cause of the protests.

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