Singapore — The exchange rate is not something that usually attracts the attention of most netizens but a Facebook post by Workers’ Party MP Jamus Lim not only drew decided opinions, but also an unusually large crowd of netizens to join the conversation.
The Sengkang GRC MP, an associate professor of economics at ESSEC Business School, had earlier addressed the subject in Parliament. Speaking on the Monetary Authority of Singapore (Amendment) Bill on Jan 11, he underlined the potential costs of an undervalued Singapore dollar.
To help his Facebook audience better understand his argument, Prof Lim took a side trip down memory lane in his Jan 17 post. During his very first trip abroad, to England and France, before he enlisted for National Service, he said, he had to deal with exchange rates so as not to overspend the money his parents had given him as a graduation gift.
“That’s where the constant conversions came in. At the time, the pound was super-strong (like 2.4 Sing to a quid), and to be safe, I recall multiplying everything by 3, and subtracting just a tiny amount. To stretch the budget, we would load up during breakfast (since it was included in our budget B&Bs), and went for buffets that would make up lunch and dinner. The bottom line was, currency was often a killer,” he wrote on Jan 17.
At the time, Singapore’s exchange rate was weak “because our economic fundamentals could only support an exchange rate at a relatively lower rate”.
But this is no longer the case today.
He writes that a “deliberately undervalued exchange rate can also be a viable development strategy,” But a weak exchange rate “indirectly impoverishes our consumers” because it makes imported goods such as “Nike shoes, Samsung TVs, L’Oréal makeup” more expensive.
Moreover, the burden on consumers is even more relevant today, he says, given that inflation is higher than it’s been in the past eight years.
“Weak exchange rates allow elevated prices on imports – especially food and fuel – to translate into higher sticker prices that we all face,” wrote Prof Lim.
The “exchange rate undervaluation isn’t some abstract policy with little relevance for our daily lives,” but “whether the Sing dollar is appropriately valued should concern” everyone.
That’s why he raised the issue in Parliament, he said. The House recently debated a Bill allowing MAS to transfer excess foreign exchange reserves to the Government Investment Corporation (GIC) to manage.
Prof Lim wrote, “such reserves only build up when there’s a lot of demand by foreigners for our currency than locals’ demand for foreign currency. Normally, this excess demand would cause our exchange rate to strengthen. But if the MAS wants to keep the exchange rate undervalued, it’ll supply more Sing dollars to the market.
“The upshot is that these are exchanged for foreign currency, which leads to a buildup of reserves.
“So we only end up with too much reserves – which makes the transfers to GIC necessary – when our exchange rate is routinely weaker than it needs to be.”
He added the following important point: “Since 1970, this rate—adjusted for inflation and our trade—has remained roughly the same.”
“I think that MAS can allow the Sing dollar to get stronger.”
And while this would mean that GIC would have less reserves, Prof Lim said that it also means that we keep more purchasing power in the hands of the Singaporean consumer.”
Prof Lim’s speech in Parliament on the MAS Amendment Bill may be viewed here.
Netizens thanked him for drawing attention to the exchange rate and how it affects everyday life. Several also engaged Prof Lim on related topics.
“I applaud you for bring(ing) up the real important topics. We as a nation should be discussing more stuff like this,” commented one.
Another user remarked that the post was “Very insightful”.
When a netizen asked for a further explanation, the professor obliged.
Another netizen asked what would happen with imports and exports should the Singapore dollar weaken. This led to several more exchanges.
/TISG
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