The Monetary Authority of Singapore (MAS) has rejected the United States’ Treasury’s conclusion on Singapore as a currency manipulator in the latter’s newest report on macroeconomic and foreign exchange policies of the US’ major trading partners.
Responding to media queries in a press release on Wed (29 May), the same day the report was released, MAS stressed that the Republic’s “monetary policy framework, which is centred on the exchange rate, has always been aimed at ensuring medium-term price stability, and will continue to do so”.
Citing the US Treasury’s report, MAS highlighted that it “manages the Singapore dollar nominal effective exchange rate (S$NEER) within a policy band, just as other central banks conduct monetary policy by targeting interest rates”.
“Whether they target the exchange rate or the interest rate, central banks aim to keep consumer price inflation low and stable as their primary mandate,” added the Authority.
MAS also rebutted the assumption that it has been using currency manipulation “to gain an export advantage or achieve a current account surplus”, stating that “a deliberate weakening of the Singapore dollar would cause inflation to spike and compromise MAS’ price stability objective”.
“Singapore’s current account balance should be viewed in context. In its early years of development, Singapore ran persistently large current account deficits averaging close to 10% of GDP between 1965-84, when its investment needs were greater than available saving.
“As the economy matured, its investment needs tapered off, while national saving rose. Consequently, the current account turned into a surplus position,” MAS explained.
The reduction of Singapore’s current account surplus, the Authority predicted, will be tangential upon “rising affluence that will raise consumption” and the drawing down of “public and private savings” to accommodate “the needs of an ageing population”.
US Treasury adds Singapore to currency manipulation watchlist for “large current account surplus” and at least S$17bil “net foreign currency purchases”
Singapore’s “large current account surplus and net foreign currency purchases of at least US$17 billion [approximately S$23.5bil]” last year were among the factors that compelled the US Treasury to place the Republic on its currency manipulation watchlist, adding that Singapore’s foreign currency purchases in 2018 accounted for 4.6 per cent of its GDP.
The Treasury also noted in its report that Singapore “should undertake reforms that will lower its high saving rate and boost low domestic consumption, while striving to ensure that its real exchange rate is in line with economic fundamentals, to help narrow its large and persistent external surpluses”.
However, it acknowledged that Singapore has pledged to report more intervention data.
Head of markets strategy at National Australia Bank Christy Tan told Bloomberg: “Singapore’s monetary policy adjustments are primarily made through its currency, hence, intervention activities are relatively heavier.”
She is sceptical that being placed on the watchlist would have “meaningful impact,” adding that Singapore is “still very export-oriented” following the U.S. urging the Republic to boost domestic consumption.
Economist at NH Investment & Securities in Seoul Kim Hwan told Bloomberg that the trade war between the U.S. and China may have influenced the outcome of the Treasury’s report, as Singapore’s addition to the list signals the continuous pressure placed on China by the US.
“These countries [Singapore, Malaysia, and Vietnam] are all Southeast Asian countries that have close economic correlations with China,” said Kim.
Countries with a current account surplus with the U.S. equivalent to 2 per cent of GDP are now eligible for the list, down from 3 per cent. Other thresholds include persistent intervention in markets for a nation’s currency, and a trade surplus of at least US$20bil [approximately S$27.6bil].
Countries that meet two of the three criteria are placed on the watch list. China only met one of the criteria, but the Treasury said it’s on the list because of its large trade surplus with the U.S.
While being listed as a currency manipulator does not come with “immediate” sanctions, it may “rattle financial markets”, Bloomberg observed.
However, CNBC reported that countries found to have engaged in currency manipulation “may face trade sanctions”, as the Treasury Department is required under a 1988 law to report to Congress every six months on whether any countries are manipulating their currencies to gain trade advantages over the US.
