US Treasury adds Singapore to currency manipulation watchlist for “large current account surplus” and at least S$17bil “net foreign currency purchases”

Singapore has been added to the United States’ Treasury’s currency manipulation watchlist alongside Malaysia and Vietnam due to the Republic’s “large current account surplus and net foreign currency purchases of at least US$17 billion [approximately S$23.5bil]” last year.

Bloomberg reported on Wed (29 May) that according to the Treasury’s Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States report, 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.