Heng Swee Keat, the country’s Deputy Prime Minister as well as its Finance Minister, said on May 31 (Friday) that manipulating currency would not be advantageous to Singapore.
In his first comment concerning Singapore having been placed by the United States on its currency watchlist, along with eight other countries, Mr Heng underlined that Singapore is not a currency manipulator.
In an answer to a question from The Straits Times (ST), Mr Heng said,
“It is not in our short-term nor long-term interests to manipulate the currency.”
The country’s DPM told members of the media while he was still in Tokyo that the Monetary Authority of Singapore (MAS) utilizes exchange rate as its monetary policy tool, which is dissimilar to other central banks, which use interest rates for this purpose.
Dr Heng said, ”Many years ago, we have already realised that being such an open economy where trade is a much bigger percentage of our gross domestic product – today it is three times our GDP – the exchange rate has a far bigger impact on inflation and economic conditions than interest rates.
Our monetary policy seeks to achieve price stability that is compatible with growth.”
Singapore, Ireland, Italy, Malaysia, and Vietnam were placed on the US watch list last week, while four other nations—China, Germany, Japan and South Korea— remained on the list.
Switzerland and India have been removed from this list.
The reason why Singapore was included on the list is because of its large current account surplus and net foreign currency purchases of at least US$17 billion (S$23.4 billion) in 2018. This translates to 4.6 percent of the GDP, over twice the US threshold.
Nations that have a current-account surplus with the US equivalent to 2 percent of GDP have become eligible for the list when in the past it used to be 3 percent.
According to the US, it will be watching the countries on the list closely in order to determine whether these countries are devaluating their currencies on purpose in order to obtain a trade advantage.
The US Treasury Department, under a law passed in 1988, must report to Congress every six months concerning whether or not countries are manipulating their currencies in order to gain trade advantages over the US. Countries that are discovered to be doing this could possibly face trade sanctions.
China was identified as a currency manipulator in 1994, during President Clinton’s term. When Donald Trump was campaigning for office in 2016, he promised to label China as a currency manipulator again. While it only meets one criterion the US Treasury set for labeling nations as currency manipulators, China was included on the watchlist nevertheless due to its big trade surplus with America.
However, the Deputy Finance Minister has said that manipulating its exchange rate would be unsustainable for the country. If the exchange rate is purposefully kept low, this would lead to hyperinflation. Conversely, an artificially high exchange rate would cause serious deflation.
“You may get a short-term boost, but you will end up with longer-term problems,” Mr Heng said, if the country would use the exchange rate to achieve an advantage.
“The economy goes through cycles, and changes in exchange rates and fiscal policy help us to dampen the amplitude of those cycles.”
Mr Heng also emphasized that the country needs structural policy changes to protect long-term growth, because of its aging population. “If we manipulate our exchange rate for some short-term gains, we will set ourselves further behind.”/ TISG
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