The Monetary Authority of Singapore (MAS) has asserted that it “does not engage in currency manipulation” after the U.S. Treasury put Singapore on a watch list for currency manipulation.

In its semi-annual foreign exchange report that was submitted to Congress, the U.S. Treasury cited Singapore’s large current account surplus and net foreign exchanges purchases of at least S$17 billion last year, as the reasons for placing Singapore on the list.

The watch list will closely examine the foreign exchange policies of the nations on the list. Countries on the list that end up being labelled “currency manipulators” could impact financial markets and face penalties.

MAS has since responded to the Treasury report and has asserted that it “does not manipulate its currency for export advantage.”

Reiterating that Singapore’s monetary policy framework, which is centred on the exchange rate, has always aimed at ensuring medium-term price stability, the central bank said that it aims to keep consumer price inflation low and stable as their primary mandate.

MAS added that it “does not and cannot use the exchange rate to gain an export advantage or achieve a current account surplus. A deliberate weakening of the Singapore dollar would cause inflation to spike and compromise MAS’ price stability objective.”

Pointing out that “Singapore’s current account balance should be viewed in context,” MAS said: “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 assesses that together with rising affluence that will raise consumption, Singapore’s current account surplus will be reduced when public and private savings are drawn down for the needs of an ageing population.”