YOGYAKARTA - The cash is king phenomenon has returned to the public spotlight since recent times.
Cash is king resurfaced after Bank Indonesia (BI) mentioned economic problems that Indonesia needs to watch out for.
The cash is the king phenomenon was formed due to global economic turmoil and high uncertainty. This phenomenon shows that people believe that cash or cash is more valuable than other investment instruments.
In a working meeting with Commission XI of the DPR RI that had been held before, BI Governor Perry Warjiyo said cash is king was the cause of the issuance of capital flows from the global market. People choose to hoard their money in liquid instruments or easily cashed.
Cash is king is a phenomenon that shows that market participants prefer to save cash. However, cash here is not just a currency, but only the United States (US) dollar.
This condition can be seen from the soaring US dollar index of 0.36% to 114.50 in September 2022. This increase in the US dollar index is at its highest level in more than 20 years and is the highest annual increase in history recorded on Refinitiv.
Cash in king is not the behavior of investors or money owners to store US dollars in cash only. However, cash here is also in the form of savings or other liquid US dollar investment instruments.
The cash is king phenomenon that occurred this year was caused by the aggressive attitude of the US central bank (The Fed) raising interest rates. Cash is king is different from rush money or conditions when people withdraw large amounts of money from banks.
The Fed recorded raising interest rates by 375 basis points to 3.75%-4%. In fact, the trend of skyrocketing interest rates is said to still last until early 2023.
The cash is king phenomenon made the US dollar strong because its value was very high. Especially with the status of a safe haven, the US dollar is increasingly being sought after when global economic conditions are threatened with recession in 2023.
"Due to high risk perceptions, global investors withdraw their funds from emerging markets, including Indonesia, and place them in liquid investments, which are close to cash," said the BI Governor in Siniar's Economic Prospects and Policy Bauran directives Bank Indonesia on Friday (2/12).
There are several advantages of cash or cash. Here's a number of items.
Cash Irreversible
Cash is in real or concrete and cannot be made an opinion. In contrast to financial reports that can be manipulated or recorded in numbers. Therefore, using cash can minimize fraud or namipulation.
Although more real, cash is not always physical or touchable. Another form of cash is the account balance in the amount of funds available without manipulation treatment.
Cash Determines Company Sustainability
Cash ownership can be the determinant of the company's sustainability. The ability of a company to scale up can be measured from the cash it has. The new company is required to be able to generate as much cash as possible.
Big Cash Will Encourage Investor Interests
Factors that make investors to invest their assets are from the amount of cash the company has. Investors will see liquid funds because they want their money to be disbursed immediately.
Usually investors will see if a company or business can make cash and meet their own needs. Investors will invest in higher shares if the company can earn more money as well.
Cash Determining Business or Business Valuation
Cash is very decisive in the company's valuation. This point relates to the previous two points, where investors will see the amount of cash the company gets. The higher the value of cash, the higher the valuation of the company.
There are a number of losses caused by the cash is king phenomenon. Here are some of the weaknesses of cash is king.
The rupiah Exchange Value Lowers
Cash is king causes a lot of financial losses in many countries, one of which is Indonesia. As a result of this phenomenon, the rupiah exchange rate decreased by more than 9%.
The decline is an additional problem for Indonesia, ranging from triggering an increase in inflation, a swelling oil and gas import burden, to debt burdens in the government and corporations in the form of US dollars.
Assets that Are Hard to Develop
Although money ownership determines the ability of a company, having too much cash can make the company's finances not ideal. Cash is an asset that is difficult to develop. The company will find it difficult to multiply its assets if the funds obtained are only allocated to cash, deposits, and savings accounts.
That's what cash is king explains along with its profits and losses. Too much cash can result in not being good for the financial condition of a company. It does not rule out the possibility that the value of cash will continue to decline in the next few years. In addition, too much cash circulating could lead to inflation in a country.
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